The US economy started 2026 on a strong footing, with solid GDP growth and a resilient labor market carrying a momentum from 2025. But that stability didn’t last long! The economy was soon at the mercy of the US-Iran conflict which nudged oil prices and inflation higher. Adding to the volatile backdrop, Jerome Powell’s term as Fed Chair ended in May, with Kevin Warsh sworn in as his successor. A steep tech-stock selloff in the first quarter further rattled markets. By mid-year, growth was intact but the outlook had grown significantly more uncertain.
A Quick Real Estate Review
The first half of 2026 delivered a US real estate market best described as “stable but stuck”, and the following were the major themes:
- U.S. single-family home prices increased by 0.8% year over year in May 2026 compared with May 2025.
- Mortgage rates hovered between 6.1%–6.6%, dipping to a 2026 low of 6.09% in February before climbing back on geopolitical shocks.
- Commercial real estate pricing hit fresh records, as median price per square foot reached $129 in Q1 2026, a twelfth straight quarterly gain.
- Multifamily and senior housing outperformed, while office and industrial lagged on a total-return basis.
- Two shocks defined H1: the Iran conflict and a steep tech-stock selloff nicknamed the “SaaSpocalypse.”
Let us dive into details, sector by sector!
Residential Real Estate
Home prices remained relatively stable, but regional differences became more noticeable. As of May 2026, the national median home price was $398,771, up 2.0% year over year. However, this small national increase hides major regional trends. Home prices declined across many Southern markets, while the Northeast and Midwest continued to see price growth.
According to J.P. Morgan Global Research, housing supply is driving these differences. Home prices have been falling the most along the West Coast and in the Sun Belt, where a large number of homes built during the pandemic-era construction boom are still on the market. Based on current conditions, J.P. Morgan expects national home prices to remain mostly flat, with around 0% growth throughout 2026.
Mortgage rates remained the biggest uncertainty in the housing market. The year began with rates moving lower, reaching a 2026 low of 6.09% in February. However, rising geopolitical tensions, including the Iran conflict, pushed oil prices and Treasury yields higher, causing mortgage rates to climb. By mid-June, the average 30-year fixed mortgage rate had increased to 6.52%, about 50 basis points higher than before the conflict began. Although a tentative peace agreement eased some pressure, rates were still around 6.49% as of July 9, 2026. The Federal Reserve also added to the uncertainty. In its June projections, officials indicated that a rate hike was more likely than a rate cut for the remainder of 2026.
Looking ahead, most forecasts expect mortgage rates to stay in the mid-6% range through the second half of 2026. Fannie Mae projects rates around 6.4%, the Mortgage Bankers Association (MBA) expects 6% – 6.5%, and the National Association of Home Builders (NAHB) does not expect mortgage rates to drop below 6% until late 2027.
Commercial Real Estate
Commercial real estate remained surprisingly more resilient in 2026. The median price per square foot reached a record $129 in Q1 2026, thus marking the 12th consecutive quarter of price growth. However, appreciation slowed, with year-over-year growth declining from 11.7% in Q3 2025 to 8.7% in Q1 2026. This strength continued despite the Q1 tech-stock selloff, often called the “SaaSpocalypse,” during which software stocks fell more than 24%, their sharpest quarterly decline since Q4 2008.
Performance varied widely across property sectors. The gap between the best- and worst-performing asset classes is large.
- Industrial real estate prices have increased 88.5% since pre-pandemic levels, while office properties have risen only 36.6%.
- Multifamily remains the most expensive asset class at around $150 per square foot, while industrial is the least expensive at about $110 per square foot.
Multifamily
The multifamily sector was one of the strongest performers in commercial real estate during the first half of 2026. Apartment demand rebounded in Q1 2026, as absorption (the number of apartment units leased) reached 78,000 units nationwide. That was 32.3% higher than the five-year Q1 average. This shows that renter demand remained strong despite an uneven labour market and increased move-outs at the end of 2025.
The recovery was also supported by a sharp slowdown in new supply. Developers completed just 58,000 new apartment units in Q1 2026, the lowest quarterly total since Q1 2021. After several years of significant apartment construction following the pandemic, the development pipeline has started shrinking. Strong demand along with fewer new deliveries pushed the apartment vacancy rate down by 20 bps to 4.8%- a historically low level.
Despite tighter market conditions, apartment rent growth remained modest. Rents increased only 0.2% Y/Y in Q1 2026, suggesting that landlords have not yet gained significant pricing power.
Looking ahead, fewer construction completions are expected to further strengthen multifamily market fundamentals through the rest of 2026. However, uncertainty in the labour market could continue to limit future rent growth.
Retail
The retail real estate sector continued its strong performance from 2025 into the first half of 2026, as another among the healthiest segments of commercial real estate. The retail vacancy rate stayed near historic lows at 4.5%-5%. This was supported by an extremely limited construction pipeline. After years of minimal retail development, very little new supply entered the market, helping keep vacancies low.
Although retail leasing activity slowed during the first half of the year, the impact on the market was limited. Leasing in Q1 2026 remained below the five-year average, and by spring, overall tenant demand was flat to slightly negative as higher living costs caused many discretionary retailers to slow expansion. However, because so little new retail space was delivered, landlords continued to maintain pricing power. Retail rent growth remained stronger than in most other commercial property sectors, even as leasing decisions became slower.
Performance varied across retail property types. Grocery-anchored shopping centers and neighbourhood strip centers remained the strongest performers, supported by steady demand from grocery stores, discount retailers, and service-based businesses that are less affected by e-commerce and weaker consumer spending.
To sum it up, the retail sector saw modest demand growth during the first half of 2026, but the lack of new supply remained its biggest advantage. That supply constraint helped retail remain one of the most stable and resilient commercial real estate sectors despite broader economic uncertainty.
Office
The office real estate sector was the most divided segment of commercial real estate in the first half of 2026. Performance continued to depend largely on building quality and location. Modern, amenity-rich Class A office buildings in prime locations attracted strong tenant demand, while older office properties in less desirable areas continued to struggle with high vacancy rates and weaker leasing activity.
Overall office leasing is expected to improve through 2026, with total leasing volume projected to exceed pre-pandemic 2019 levels for the first time. As premium office space becomes more limited, demand is expected to gradually shift toward well-located secondary properties. Despite improving leasing activity, the office sector generated a 4.7% total return for the year ending March 2026, as declining property values offset steady rental income.
Industrial
The industrial real estate sector continued to outperform over the long term, although growth moderated in early 2026. Since before the pandemic, industrial property prices have increased 88.5%, compared with 36.6% for office properties. This strong performance has been driven by continued e-commerce growth, supply chain reshoring, and sustained demand for logistics and warehouse space.
However, industrial returns slowed during the first half of 2026. Industrial delivered a 3.6% total return for the year ending March 2026, which was the lowest among major commercial property types. A lot of this weakness came from Western markets, where a large wave of new construction created temporary oversupply. Even so, tenant demand remained strongest for modern distribution facilities in prime locations, while older industrial buildings attracted less interest. Looking ahead, industrial leasing activity is expected to improve gradually through the rest of 2026, supported by ongoing manufacturing reshoring and expanding demand from third-party logistics providers.
What Drove H1 2026?
- The Iran conflict (late Feb to mid-June) spiked oil prices and Treasury yields, undoing early-year mortgage rate declines.
- The “SaaSpocalypse”, which was the worst tech-stock quarterly decline since 2008, barely dented commercial real estate pricing.
- A cautious Fed, which held rates steady at 3.50%-3.75% through H1 and by June was leaning hawkish.
Outlook for H2 2026
- Mortgage rates likely stay range-bound (6.2%–6.6%), unlikely to break below 6% before 2027.
- Home prices probably stay roughly flat nationally, with Northeast/Midwest strength offsetting Sun Belt softness.
- NAR estimates the market needs 300,000–500,000 more homes for sale to normalize.
- Commercial pricing likely keeps climbing, but slower, with the industrial/multifamily vs. office/hospitality gap persisting.
- Fed policy is also a big decision maker- a hike rather than a cut would keep rates elevated into year-end.
H1 2026 was a market of resilience, not momentum. With the Fed leaning hawkish rather than dovish by mid-year, market participants must expect H2 2026 to look much like H1- modest, uneven, and shaped majorly by supply and rates.
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