In Part 3 of my series, San Diego Real Estate: State of the Market, I break down why a crash is unlikely in 2026, what would actually need to happen for one to occur, and why today’s market looks fundamentally different from past downturns.
If you’d like to explore specific segments of the market, you can jump ahead to the full series below:
San Diego Real Estate: State of the Market Series
- Part 1: 2025 Market Report Card & Key Drivers
- Part 2: Why 2–4 Unit Properties Outperformed
- Part 3: Will San Diego See a Market Crash in 2026?
- Part 4: 2026 Market Forecast & Where to Win
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First, we don’t have the surplus of inventory that existed before the 2008 market crash. While inventory has increased meaningfully year over year, it remains well below even pre-pandemic levels.
San Diego began 2026 with 3,755 active listings, which is 13% more than the start of 2025, but still nearly 30% below the 3-year pre-Covid average (2017-2019), which was 5,288 active listings to start the year. That period represented a healthy market with normal 5-7% per year growth in home values, not distress.
Second, homeowners today have more equity than ever. As a result, even when owners need to sell due to life events, they are rarely forced into a distressed sale.
Roughly two-thirds of homeowners nationwide either own their home outright, or have at least 50% equity relative to their mortgage balances.
Rather than forced selling, we are more likely to see homeowners access equity through second mortgages or home equity lines of credit (HELOCs). In contrast, the 2008 crash was caused by people being overleveraged and trapped in predatory loans that they couldn’t refinance or afford, causing a massive wave of loan defaults across the country.
Mortgage performance data further reinforces this point. The national mortgage delinquency rate is currently 3.34%, lower than it was leading up to the 2008 market crash or even before the pandemic.
There is simply no pipeline of distressed homeowners poised to flood the market.
Locally, short sales and foreclosures account for only 1.4% of all active listings in San Diego County, and extraordinarily low number by historical standards.
For San Diego home buyers in 2026, the best case scenario is a continuation of the current market dynamics, which is arguably the most balanced conditions San Diego has seen in more than a decade.
To be clear, San Diego is not in a true buyer’s market. A buyer’s market is typically understood to mean that at the current pace of home sales, it would take 6 months for all active inventory to sell.
Today, San Diego has approximately 97 days of inventory, up modestly from 90 days at this time last year. Homes are taking longer to sell and buyers have more options, but this is a healthy normalization, especially after the unsustainable growth during the Covid-era boom.
What we’re experiencing is closer to a balanced market. Because San Diego is historically such a strong seller’s market, this balance can feel unfamiliar, but it’s not unhealthy or remotely dangerous. The last comparable period was 2018-2019, which proved to be an excellent time to buy.
In 2026, we are unlikely to see a true buyer’s market. Instead, we will see more listings from sellers to who want to sell but don’t have to, giving buyers more choice and negotiation leverage, but there will still be competition for well-priced listings and values will rise year-over-year.
Several factors could quickly shift conditions back toward a seller’s market.
Mortgage rates remain the primary driver. There is approximately 3 years of pent-up buyer demand, and if rates dip below 6% due to what’s going on with the job market and inflation (which is likely), many sidelined buyers will re-enter the market.
If buyer demand returns faster than sellers list their homes, we could be back in bidding-war conditions as early as spring.
There are also policy proposals that could affect housing dynamics if implemented.
One proposal involves mortgage portability, which would allow homeowners to take their current mortgage rates and balances into new purchases. While attractive in theory, industry experts have raised concerns about practical implementation.
Additionally, the administration recently suggested that it would take steps to limit large institutional purchases of single family homes. While this could help buyers in more affordable regions, it’s unlikely to materially impact San Diego, where high prices already limit corporate investment returns.
Whether either proposal becomes reality remains uncertain.
For buyers in 2026, the best advice is simple: ignore click-bait headlines and focus on local data.
Most industry experts project 2-3.5% annual home price appreciation nationally over the next 5 years, which is slower than the long-term average, but still positive. Equity growth may be moderate, but it has not disappeared.
The key is time horizon. Buyers who plan to live in a home for at least 5 years are far less exposed to short-term market fluctuations. Many sellers in 2025 who purchased just 2-3 years ago did lose money, but real estate has never been a guaranteed short-term trade.
For most households, home ownership remains one of the most powerful long-term wealth-building tools available.
The best time to buy was yesterday. The second-best time is now–if the purchase fits your lifestyle and finances.
Talk to a lender to understand your options. A 20% down payment is not required. Programs exist with down payments as low as 3%, and today’s more balanced market has made sellers increasingly receptive to buyers using assistance programs.
While some buyers wait, prices will not. The market typically gains momentum toward the end of January.
If you’re considering a purchase and would like referrals to lenders I trust, you can book a strategy session using the button below.
Explore the Full Series
This article is Part 3 of a four-part series: San Diego Real Estate: State of the Market.
- Part 1 examines how San Diego home values performed overall in 2025 and which zip codes saw the biggest gains and losses.
- Part 2 explores why 2-4 unit properties outperformed and where investors found opportunity.
- Part 4 looks ahead with a 2026 San Diego real estate market forecast and how to win with your real estate investments in the new year.
If you’d like a custom report showing how your specific neighborhood performed in 2025, comment with your zip code and whether you want data for detached homes, condos/townhomes, or 2–4 unit properties, and I’ll prepare it for you.
Wishing everyone a prosperous 2026. Live well and invest smart!
*All data in these articles are from quantitative real estate economist Steven Thomas and the San Diego MLS, unless otherwise noted.
