2026 was set to be the big recovery in real estate with rates lowering, setting us up for a great year. Instead, the Iran war kicked off driving energy prices and in turn inflation up. The rate narrative has made a U-turn with the question of when to expect cuts flipping to possibly no cuts at all. What does this mean for residential and commercial real estate? What happens to interest rates? Do these changes radically alter the real estate narrative for 2026?
Has the Iran war derailed my predictions for real estate in 2026
I feel good with my predictions; so far I’ve been spot on with interest rates remaining high and sales volumes continuing to fall. It appears interest rates will stay about where they are or possibly a bit higher through year end.
The interesting part is when I originally put out my predictions in December, I didn’t predict the Iran war, but at the end of the day we ended up at the same place with interest rates heading higher/stuck where they are.
Commercial real estate 2026 updated predictions
On the commercial side, high interest rates will continue to put pressure on cap rates. Remember that the higher the cap rate the lower the value (they work in inverse of each other. Office is going to get destroyed with values dropping around 30%-50 overall due to lower demand, higher financing rates, and much higher cap rates. Retail and Industrial will also come off their highs as cap rates continue to rise to keep up with the rise in treasuries. Rents will not be able to rise fast enough to compensate for the higher cap rates.
The wild card is what happens in late 2026 as higher interest rates continue to dampen demand; furthermore, the federal reserve must hold rates higher for longer which will keep rates from falling back to their lows.
Commercial is a different ball game than residential as commercial properties are at much higher risk for larger price drops. For example, large class C office will need a huge reset in prices which could be in the 60%+ range which we are already seeing in places like Denver
Residential Real estate 2026 updated predictions
On the residential side: look for volumes to continue to decline or stay anemic while inventory adds up which will lead to a softening of prices in most markets especially in expensive markets like Denver. There will likely be a reset in the 5-10% range for prices in most markets with some expensive markets seeing 10% plus declines. I don’t see the bottom falling out, but it is going to get bumpy in residential real estate the later part of the year. On a separate note, the condo market in most major markets is coming under huge pressure especially on the more cost-effective units so this is an area where we could see much larger price resets
Will there be a recession in 2026?
I’m going to put my odds at 20% for a recession in 2026. As rates remain higher commercial real estate values will continue to plunge, which will lead to less lending and ultimately some big losses. Eventually the lack of liquidity will flow through to consumer spending, leading to a slowdown. Unfortunately, the risks of recession are mounting as there is always a lag in the economy. Furthermore, we have the wild card of consumer sentiment where everyone is talking about a recession, will this make us end up in one.
Fortunately, my data is not showing an indication of a huge inflection point in the economy, but there are some macro factors that could throw us all for a loop. For example, the sharp run-up in treasuries while stocks also fell was definitely out of the ordinary and if this trend continues it could be an ominous sign for a bigger reset.
On the flip side, there is a lot of stimuli coming into the economy from looser bank rules to bigger tax refunds which will act as a stimulus to the economy. My gut says any reset in the economy will be either late 26 or sometime in 27 as the stimulus helps the economy run a bit hotter for longer.
What happens to real estate in 2026: Summary
2026 is going to continue to be a bumpy year in real estate. We are already seeing signs of this on the residential side with the median prices on condos off 5% in Denver year over year and volumes down 20%. Fortunately, other than condos, I don’t see any huge changes on the residential side, more of a “stuck pattern” with not much hope of a good spring season with interest rates remaining high and business uncertainty also high.
Commercial real estate is a whole different animal with rents dropping, vacancy rising, and ultimately prices facing a huge reset especially in the office sector along with retail. If rates remain higher for longer, there will be increasing stress on every commercial property type as cap rates remain elevated.
Anyone in residential or commercial real estate is going to have a tough ride as volumes will stay extremely low throughout the nation until there is a major reset in the economy that forces individuals and businesses to sell and rates to fall substantially. Long and short 2026 looks like a tough year in real estate and a rinse and repeat of 25 with some downward tilt.
Now there is a wildcard on the economy, if the Iran war drags on and energy prices remain elevated for an extended period of time, this could lead to a different outcome the later part of the year and possibly trigger a recession as businesses pull back due to uncertainty in the market.
On the flip side, fortunately every single cycle creates new opportunities, and we can always look forward to 2027 😊
It is important to note that as always, real estate is market specific so when we look at the big headlines, that is basically meaningless for your particular market. Higher priced markets like Denver will face considerably more price pressures than a city like Atlanta due to the median price of homes and the number of employers migrating to Atlanta and the South in general. So although the national predictions are for x or y, take this into account when you are evaluating your particular scenario.
Additional Reading/Resources
- https://www.bloomberg.com/news/articles/2023-11-02/housing-crisis-gets-worse-for-americans-on-mortgage-lock-in-effect?srnd=premium
- https://car-co.stats.showingtime.com/docs/mmi/x/Statewide?src=map
- https://www.wsj.com/business/the-rising-price-of-cardboard-a-positive-sign-for-the-economy-08908d0f
- https://www.fairviewlending.com/why-are-house-prices-still-rising/
- https://www.fairviewlending.com/does-the-trump-election-matter-for-real-estate-homes-sales-lowest-since-95/
- https://www.fairviewlending.com/federal-reserve-cuts-rates-should-you-rejoice/
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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