San Diego's 'Great Housing Reset' 2026: What 5 Months of Declining Prices Mean for Homeowners

Why They're Calling It 'The Great Housing Reset'

Redfin has dubbed 2026 "The Great Housing Reset," while Compass has described it as the start of a "new era" in real estate, signaling that industry leaders view current conditions as more than a temporary market correction. The term "reset" implies a fundamental recalibration of pricing, affordability, and market dynamics rather than a short-term price dip.

According to Nicholas Godec of S&P Dow Jones Indices, "October's data show the housing market settling into a much slower gear. Elevated mortgage rates, paired with inflation that continues to outpace home price gains, have intensified affordability pressures, potentially setting a new equilibrium of minimal price appreciation or, in some markets, outright declines."

This reset differs fundamentally from the 2008 financial crisis in several key ways:

• Lending Standards: Today's homeowners secured mortgages with strict verification standards, not the subprime lending that fueled the 2008 crash
• Equity Positions: San Diego homeowners carry significantly more equity due to sustained appreciation from 2020-2024
• Inventory Levels: Supply remains constrained rather than flooded, preventing the cascading price collapses of 2008
• Employment: Job losses haven't accompanied the price decline, maintaining demand fundamentals

Historically, San Diego housing resets have lasted 12-24 months before stabilization. The 2011-2012 period saw similar recalibration, with prices declining modestly before resuming growth. Experts predict this current reset could follow a similar timeline, with potential stabilization by late 2026 or early 2027.

The Numbers: 5 Months of Price Decline + 6 Months of Rent Drops

The latest Case-Shiller report shows San Diego home prices falling 0.10% in October 2025—marking the sixth consecutive monthly decline. Year-over-year, local prices are down 0.59% compared to a national average increase of 1.36%, according to data published in January 2026.

Here's how the decline has unfolded month by month:

San Diego County's median home price for single-family homes reached $985,000 in October 2025, with current data showing medians around $1.05 million as the market enters 2026. While prices have declined from pandemic-era peaks, they remain substantially elevated compared to pre-2020 levels.

Rents Fall for First Time in 15 Years

Simultaneously, San Diego rents have fallen for six straight months, reaching a significant milestone: the county hasn't seen average rent decline on an annual basis since the end of 2010—a 15-year gap. Rents are down 0.3% year-over-year to an average $2,520 per month as of early December 2025, according to CoStar data.

One-bedroom rents have declined 6.3% annually, while two-bedroom rents are down 4.8%, signaling that the rental market correction is affecting various housing types. The vacancy rate has climbed to 5.7%, its highest since 2009, enabling renters to negotiate better terms.

Specific Neighborhood Impacts

Coastal Communities:

• Pacific Beach: Prices down 4.3% year-over-year, median $1.3M, homes taking 39 days to sell (vs. 21 days previously)
• Ocean Beach: Prices down 8.0% year-over-year, median $1.3M, homes taking 47 days to sell (vs. 31 days previously)
• La Jolla: Bucking the trend with 9% appreciation, median $2.8M, demonstrating luxury market resilience

Inland Areas: Mid-tier neighborhoods are experiencing similar downward pressure, though specific data varies by micromarket. Areas with newer construction are seeing slower sales velocity as buyers weigh options.

This dual decline—both purchase prices and rents falling simultaneously—signals a fundamental shift in San Diego housing dynamics that homeowners should monitor closely when considering sale timing.

Mortgage Rates Near 6%: The Affordability Lock

Despite optimistic predictions at the start of 2025 that rates would drop to 5.5% or lower, mortgage rates are averaging 6.15% for a 30-year fixed loan as of January 2026, according to Freddie Mac data. Zillow reports rates as low as 5.99% for well-qualified borrowers, but the 6% threshold remains the psychological barrier affecting buyer behavior.

Forecasters predict rates will remain in this range throughout 2026:

• Realtor.com and Redfin: ~6.3% average
• Fannie Mae: Potentially 5.9% by year-end
• Mortgage Bankers Association: ~6.4% annual average
• Q1 2026 consensus: Between 6.0% and 6.4%

Income Requirements vs. Reality

To afford San Diego's median home price of $1.05 million, families need an income of nearly $275,000 per year. The average monthly mortgage payment—including insurance, property taxes, and maintenance—after a 10% down payment reaches $5,757.

Yet San Diego County's median household income is just $96,964, creating a staggering affordability gap. Only 1 in 10 San Diego residents (about 11%) can afford a median-priced home in the region, according to the University of San Diego's Nonprofit Institute.

Buyer Pool Shrinkage

When rates hovered at 3% during 2020-2021, a household earning $120,000 could afford a $500,000 home comfortably. At 6% rates, that same household can only afford approximately $365,000—a 27% reduction in purchasing power. In San Diego, where median prices exceed $1 million, this shrinkage is devastating to market velocity.

Cash Buyer Advantage

This environment heavily favors all-cash buyers who can bypass financing contingencies entirely. About 33% of homes sold in the first half of 2025 were purchased entirely with cash, demonstrating how equity-rich buyers are gaining market share. For homeowners looking to sell quickly with certainty, cash buyers eliminate financing risk entirely—a significant advantage when traditional buyers face appraisal and lending hurdles.

New State Housing Laws Add Complexity to Market Reset

Several major California housing laws take effect in 2026, adding another layer of complexity to San Diego's market reset:

AB 507: Adaptive Reuse Streamlining (Effective July 1, 2026)

This law streamlines ministerial approval for converting nonresidential buildings—offices, industrial facilities, commercial buildings, and hotels—into residential housing or mixed uses. The law requires that certain affordability and labor standards are met, potentially accelerating office-to-housing conversions in downtown San Diego and other commercial districts.

Midway Development: 4,250 Units Coming

The massive Midway Rising development looms over 2026 decisions. The City Council is expected to vote on the project early in 2026, with developers needing to negotiate a long-term lease by December 2026. Ground breaking would occur at the soonest by the end of 2026.

The project includes:

• 2,000 deed-restricted affordable apartments (30-80% Area Median Income)
• 2,250 market-rate apartments
• New 16,000-seat stadium replacing Pechanga Arena
• 130,000 square feet of retail
• 14.5 acres of parks

This represents a 172% increase in housing stock in the Midway neighborhood and would be the single-largest affordable housing project in California history. However, Point Loma and Ocean Beach residents have raised concerns about traffic, density, and infrastructure impacts on their neighborhoods.

Should You Sell Now or Wait for Recovery?

This is the critical question facing San Diego homeowners in early 2026. The answer depends on your specific circumstances, financial position, and risk tolerance.

Sell Now Scenarios: Who Benefits from Immediate Exit

1. Need Certainty Over Maximum Price: If you're relocating for work, downsizing, or have life changes requiring quick sale, waiting for potential recovery adds risk. A bird in hand may be worth more than uncertain future appreciation.
2. Limited Equity Cushion: Homeowners who purchased in 2021-2022 at peak prices may have limited equity. If prices decline another 5-10%, you could approach break-even after selling costs. Selling now preserves equity.
3. High Carrying Costs: If property taxes, insurance (which has spiked due to California's insurance crisis), maintenance, and HOA fees are straining your budget, waiting 12-24 months for potential recovery while bleeding $3,000-5,000+ monthly may not make financial sense.
4. Property Condition Concerns: Homes needing significant repairs become harder to sell in declining markets. Traditional buyers can't secure financing for distressed properties, but cash buyers purchase as-is.
5. Market Timing Pessimism: If you believe San Diego's reset will last 24+ months or deepen beyond current levels, selling now captures current equity before further erosion.

Wait Scenarios: Who Can Afford to Hold Through Reset

1. Strong Equity Position: If you purchased pre-2020 or have substantial equity, you can weather the reset. A 10% decline from current levels still leaves you well ahead of purchase price.
2. Low Fixed-Rate Mortgage: Homeowners with 2-4% fixed mortgages locked during the pandemic have minimal carrying costs. Waiting doesn't strain finances.
3. No Timeline Pressure: If you don't need to sell for personal reasons, you can wait for spring 2026 selling season (March-June, when San Diego historically sees peak buyer activity) or beyond if the reset extends.
4. Belief in San Diego Fundamentals: Limited land, desirable climate, strong employment base, and chronic undersupply support long-term appreciation. Patient sellers may recapture current declines.
5. Property in Resilient Neighborhood: La Jolla, Coronado, and other luxury markets are still appreciating despite broader declines. Location-specific strength may justify waiting.

Cash Sale vs. Traditional Sale in Reset Environment

Traditional sales face unique challenges during market resets:

• Appraisal Risk: Declining comps mean appraisals come in low, forcing price reductions or buyer withdrawal
• Financing Failures: 6% rates stretch buyer budgets; one income disruption kills the deal
• Extended Timeline: 30-60+ days of uncertainty while prices potentially decline further
• Contingency Complications: Inspection, financing, and appraisal contingencies give buyers exit ramps

Cash sales eliminate these risks:

• 7-14 Day Closings: Quick certainty locks in price before further decline
• No Appraisal Requirement: Cash buyers purchase based on their valuation, not lender requirements
• As-Is Purchase: No repair negotiations or inspection delays
• Guaranteed Close: No financing contingencies mean higher completion certainty

What Happens Next: Expert Predictions for San Diego 2026-2027

Economists and real estate analysts offer varied but generally optimistic predictions for San Diego's path through the reset:

Price Direction Forecasts

• Modest Recovery: San Diego is predicted to reach bottom in 2026 and begin a modest recovery with 1.2% price increase
• Continued Appreciation: Local forecasts suggest 2-5% price appreciation, with medians potentially reaching $1.03M-$1.05M
• Stabilization: Most experts expect 2-4% annual price growth—a sustainable pace versus the surges of 2020-2022

Crash vs. Reset Consensus

A housing market crash in San Diego seems unlikely. Experts forecast modest growth, not a crash, due to limited supply and resilient demand. San Diego's market is protected by chronic undersupply, strict lending standards, and high owner equity—three forces that prevent the chain reaction needed for a true crash.

How Long Typical Resets Last in San Diego

Historical analysis shows San Diego housing resets typically last 12-24 months. The 2011-2012 period saw prices decline modestly before stabilizing and resuming growth. The 1990s reset extended 36+ months but occurred during broader recession.

Experts predict this reset could follow the 12-24 month timeline, with potential stabilization by late 2026 or early 2027, assuming no economic recession and modest mortgage rate improvement.

Frequently Asked Questions

Conclusion: Navigating The Great Housing Reset

San Diego's 'Great Housing Reset' of 2026 represents a fundamental shift in the local real estate market. With home prices falling for five consecutive months and rents declining for the first time in 15 years, homeowners face a critical decision point: sell now or wait for potential recovery.

For those with limited equity, high carrying costs, or personal circumstances requiring certainty, selling during the reset may preserve more wealth than waiting. Cash buyers offer a particularly attractive option, providing guaranteed closings in 7-14 days without financing contingencies or appraisal risks.

For homeowners with strong equity positions, low fixed-rate mortgages, and no timeline pressure, waiting through the reset may allow them to capture future appreciation when the market stabilizes in late 2026 or 2027.

The key is understanding your personal financial situation, calculating your break-even point, and making an informed decision based on facts rather than emotion. Whether you choose to sell now or wait, staying informed about market conditions will help you achieve the best outcome for your unique circumstances.