Housing Market 2026: What Retirees Looking to Sell or Downsize Need to Know

The housing market in 2026 looks different from the frenzied pace of recent years. Mortgage rates have come down slightly. Home prices are still rising, but more slowly. And the number of homes for sale has finally started to climb.

For retirees thinking about selling a longtime home or downsizing to something smaller, these shifts create both opportunities and risks. Here is a clear look at where the market stands and what it means for your decisions.

Where Mortgage Rates Stand

As of early 2026, the average 30-year fixed mortgage rate sits near 6.2%, according to Freddie Mac. That is down from the peak of about 7.8% in late 2023, but still well above the 3% to 4% range that many homeowners locked in during 2020 and 2021.

For retirees, mortgage rates matter in two ways:

If you are buying a new home after selling. A 6.2% rate on a $250,000 mortgage means a monthly payment of about $1,535 for principal and interest. At 3.5%, that same loan would cost about $1,123. That is a $412 difference every month.
If you are selling to someone who needs a mortgage. Higher rates reduce what buyers can afford. A buyer who qualifies for a $2,000 monthly payment can borrow about $310,000 at 6.2%. At 3.5%, they could borrow about $445,000. This affects your pool of potential buyers.

The Federal Reserve has signaled that rates may ease further if inflation continues to cool. But nobody expects a return to the 3% levels of a few years ago. Planning around current rates is safer than waiting for a drop that may not come.

Home Prices: Still Rising, but Slower

The National Association of Realtors (NAR) reported that the median existing home sale price hit $398,400 in late 2025. That is up about 3.5% from the year before. For context, prices jumped more than 15% in 2021 alone, so the pace has slowed significantly.

Regional differences are large:

Northeast: Prices up about 6% year over year, driven by tight inventory
Midwest: Prices up about 4%, with more affordable starting points
South: Prices up about 2.5%, with some Sun Belt markets flat or slightly down
West: Prices up about 1.5%, with several California and Pacific Northwest markets seeing declines

If you own a home in the Northeast or Midwest, your equity position is likely strong. If you own in parts of the South or West that boomed during the pandemic, your home may have given back some of those gains.

More Homes Are for Sale Now

One of the biggest changes in 2026 is inventory. The number of homes for sale has risen to about 1.4 million nationally, according to NAR. That is up from the historic low of about 860,000 in early 2022.

More inventory is good news for retirees who want to buy. You have more options and less competition. Bidding wars are less common. Sellers are more willing to negotiate on price, closing costs, and repairs.

But more inventory also means more competition if you are selling. Your home is no longer one of just a few options on the market. Buyers have choices, and they are pickier. Homes that need work or are priced too high will sit longer.

The “Lock-In Effect” Is Starting to Fade

For the past two years, many homeowners refused to sell because they did not want to give up their low mortgage rates. This was called the “lock-in effect.” If you had a 3% mortgage, moving to a new home at 7% felt like a terrible deal, even if you wanted or needed to move.

As rates have come down closer to 6%, some of those locked-in homeowners are starting to list their properties. This is part of why inventory has increased.

For retirees who have been thinking about selling but holding off because of the rate environment, the math is getting more reasonable. It may not be perfect, but the gap between your current rate and a new one is narrower than it was a year ago.

Selling Your Long-Time Home: Tax Considerations

If you have lived in your home for decades, you probably have a lot of equity. The good news is that the tax code gives homeowners a generous exclusion on capital gains from a primary residence.

Single filers: Up to $250,000 in profit is tax-free
Married filing jointly: Up to $500,000 in profit is tax-free

To qualify, you must have owned the home and used it as your primary residence for at least two of the last five years.

For example, if you and your spouse bought your home for $120,000 in 1990 and sell it for $550,000, your gain is $430,000. Since that is under the $500,000 married exclusion, you owe zero federal capital gains tax.

But if you are single and your gain exceeds $250,000, the amount above that threshold is taxed as a long-term capital gain. The rate is 0%, 15%, or 20% depending on your total income.

Talk to a tax advisor before selling. The rules around improvements (which increase your cost basis and reduce your taxable gain) can make a big difference.

Downsizing: Where Are Retirees Moving?

Data from the moving industry and census reports show clear patterns in where retirees are relocating:

Within the same metro area. The most common move is from a larger home to a smaller one in the same general area, near family, friends, and familiar doctors.
To smaller cities and towns. Places like Asheville, NC; Sarasota, FL; Boise, ID; and Greenville, SC continue to attract retirees with lower costs and good healthcare access.
To 55+ communities. Active adult communities with built-in social activities, maintenance-free living, and age-appropriate design are seeing strong demand.
To rental properties. Some retirees are choosing to sell and rent instead of buying again. This eliminates maintenance responsibilities and frees up cash from the sale.

The Cost of Waiting

Some retirees keep putting off the decision to sell. They want to wait for better conditions, a higher price, or a lower rate on their next home. While caution makes sense, waiting has its own costs:

Maintenance and repair expenses on a home you may not keep long-term
Property taxes that continue to rise each year
The physical demands of maintaining a large home as you age
Opportunity cost of having most of your wealth tied up in a single asset

If downsizing makes sense for your life, the financial details of the market are less important than the practical benefits of a home that fits your current needs.

Steps to Take If You Are Thinking About Selling

Get a realistic home valuation. Ask two or three local real estate agents for a comparative market analysis. This is free and shows what similar homes in your area have sold for recently.
Calculate your equity and tax situation. Know your cost basis (purchase price plus major improvements) and how much of your gain is tax-free.
Decide where you want to live next before you list. Knowing your destination helps you time the sale and avoid the stress of not having a plan.
Make targeted repairs, not major renovations. Fresh paint, clean carpets, and a tidy yard go a long way. Major kitchen or bathroom remodels rarely pay for themselves in a sale.
Interview multiple real estate agents. Look for someone with experience selling homes in your price range and neighborhood. Ask about their marketing plan and typical time on market.
Understand the costs of selling. Agent commissions, closing costs, and moving expenses typically total 8% to 10% of the sale price. On a $400,000 home, that is $32,000 to $40,000.

The 2026 housing market is not perfect for sellers or buyers. But it is more balanced than it has been in years. For retirees ready to make a move, that balance can work in your favor if you plan ahead.

Reported by Robert A. Williams with additional research from the SeniorDaily editorial team. For corrections or updates, please contact us.

Topics in this story

News Housing

Back to all stories