What to expect in the real estate market heading into 2026

As Arizona moves through 2025, the residential real estate market is navigating a delicate balance of competing forces: mortgage rate volatility, emboldened sellers, cautious buyers, shifting supply dynamics and macroeconomic uncertainty. The final quarter of the year, Q4 2025, will test whether the market can maintain momentum or begin tipping more decisively in one direction. Even more significantly, what we see in late 2025 could set the stage for the residential real estate market in 2026.

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Before diving into forecasts, it’s critical to understand one of the core wildcards: mortgage interest rates. Many people assume a linear relationship between the Federal Reserve base (fed funds) rate and mortgage rates, but history repeatedly shows that the correlation is weak and lagged.

• In September 2024, the Fed cut its base rate, and yet mortgage rates rose sharply and stayed elevated thereafter. That counterintuitive move reminds us that mortgage rates are influenced by bond markets (e.g. 10-year Treasury yields), mortgage-backed security spreads, inflation expectations, credit risk pricing and lender margins — not just the Fed’s policy rate.
• Lenders sometimes “front-run” market expectations. When markets expect a Fed cut, mortgage rates may fall in anticipation, only to reverse if the cut doesn’t materialize or is weaker than expected.
• As of mid-2025, mortgage rates remain lower than in 11 of the prior 12 months, though they have crept about 25 basis points above their recent lows. This indicates continued volatility and limited predictability.

Thus, one of the central levers for Arizona’s real estate outcomes in Q4 2025 and beyond, will be where mortgage rates settle. For our purposes, we might consider scenario bands: rates holding near mid 6%, drifting downward toward the 5.5-6.0% range, or, less likely, a bounce upward above 7%.

In parallel, supply and demand dynamics at the local level (e.g. listings, days on market, new construction) will modulate how much pricing power either side has. The Cromford Supply Index (for Phoenix) is now showing signs of bottoming and an upward straightening trend, which suggests demand remains steady (though not exuberant) and supply constraints may ease somewhat.

With that context in mind, let’s dive into what I expect for Q4, some advice for both sellers and buyers across the final quarter of 2025 and what might unfold in 2026.

For Sellers: Manage Expectations and Optimize Timing

Pricing pressure will intensify in certain markets

In many Arizona sub-markets (especially in the mid and entry price ranges), “days on market” are already reaching highs. That gives buyers more breathing room for negotiation of price, closing costs or repair credits. Sellers who price aggressively, or fail to differentiate, will face resistance.

With that said, some stronger submarkets (luxury, prestigious neighborhoods, highly amenitized communities) may begin to favor sellers again — less inventory and higher demand may reduce negotiating leverage for buyers in those pockets.

Inventory will be less constricted

The rising (or “straightening upward”) trend in the Cromford Supply Index suggests that supply constraints are easing, somewhat alleviating the intense scarcity seen during the pandemic years. As more homes come to market in Q4, sellers will compete against alternatives more aggressively. Sellers must lean into presentation, staging and marketing to stand out.

The advantage of early Q4 will be real

Sellers who list early in Q4 (October through mid-November) may capture buyers who are striving to close before year-end tax or cost considerations. Late Q4 (December) could see softer foot traffic and more price sensitivity.

Be strategic about concessions and incentives

In a softer segment, sellers may need to offer incentives (closing cost assistance, home warranties, flexible closing dates). But in stronger submarkets, they may be able to resist being forced into high concessions.

Expect slower upward pricing, not steep declines

I do not expect widespread dramatic price drops in Q4 2025, barring a shock. More likely is stabilization, mild increases (especially in desirable niches) and segmentation — some markets holding firm, others softening modestly.

Quality of condition and timing will matter more

Homes in superior condition, with modern updates, strong curb appeal and turnkey readiness will outperform. Sellers who delay or underinvest in these upgrades may lose traction.

For Buyers: Be Patient and Rate Lock Strategically

Negotiation leverage improves in many markets

In mid-to lower-end segments, buyers should become more aggressive in pushing for seller concessions and price reductions. The “seller edge” of the past few years will likely erode further in many locales.

Mortgage rate lock timing is critical

Buyers should watch rate movements carefully and be ready to lock when favorable. In highly volatile markets, locking early (with float-down options) may save tens of thousands over the life of a loan.

Don’t assume constant downward drift

Because mortgage rate behavior can be counterintuitive, buyers who assume rates will steadily drop may be disappointed. It pays to evaluate each lock window carefully and hedge risk.

Be selective, especially on condition

Lower-demand properties (older, needing repairs, less desirable locations) will linger. Savvy buyers with capital can negotiate more aggressively here.

Stretch for “better” product

With modest but persistent demand, stepping into properties with stronger fundamentals (good build quality, better location, lower maintenance) can yield upside if the market rebounds.

Monitor shadow inventory or delayed listings

As some sellers with ultra-low loans (e.g. 3-4%) begin to move, they may list only when compelled. That could introduce “hidden” supply and suppress pricing surprises.

2026 Mortgage Rate Scenarios

While Q4 2025 will set momentum, 2026 may see more definitive directional shifts, especially depending on how rates evolve. Below are several plausible scenarios, and what each might bring to Arizona real estate.

Scenario 1: Mortgage Rates Fall Below 6%

This is arguably a “sweet spot” outcome:

• Pent-up demand could surge, especially among first-time buyers or those previously sidelined by affordability constraints.
• Home sales volumes in Arizona might rise 5-10% year over year (from modest growth baselines).
• Price appreciation could return to the 3-7% range in many submarkets, particularly in transit-oriented, job-rich corridors.
• Buyers of 2025‐listed homes (especially in Q4) would benefit from equity lift if they bought earlier.

If rates dip meaningfully below 6%, we might see echoes of 2021’s demand surge, although probably not at the same scale due to macro constraints (inventory, labor, materials).

Scenario 2: Mortgage Rates Hover in Mid-6% Range

This is my base-case assumption (barring major external shocks):

• The market continues to be mixed/segmented. Some areas and price bands see modest price gains; others stay flat or even soften.
• Buyers with tight budgets will remain cautious; sellers in weaker neighborhoods may struggle.
• Momentum slows, but we avoid a broad collapse.
• Developers and builders may become more aggressive with incentives to clear inventory.
• Appreciation probably stays in the 1-4% range in strong submarkets, with flat or slight declines in weaker ones.

Scenario 3: Rates Climb Back Above 7%

Less likely, but plausible if inflation resurfaces or global risk sees a flight to safety:

• Demand could retract more broadly. Some buyers get priced out.
• Price softening may spread beyond weaker pockets and into more mainstream tiers.
• Sellers would feel more pressure to reduce price or offer concessions.
• Builders might pull back on new projects, especially speculative ones.

Bottom Line & Headlines to Watch

• Q4 2025 will likely be a period of conditioning, where the market tests its boundaries of strength and softness. Sellers may find less cushion, especially in commodity segments; buyers will gain modest negotiating power in many places.
• 2026 will be a hinge year, especially if mortgage rates fall meaningfully. A drop below 6% could unlock latent demand, but if rates stay elevated, we’ll likely see further segmentation and modest growth rather than dramatic swings.
• Local nuance will dominate. The “Arizona market” is not monolithic. Micro-markets, school districts, commute times and amenities will matter more. Brokers, agents and investors who localize insight will outperform.
• Locking strategy is critical. Borrowers and lenders alike must treat rate lock windows with respect; waiting too long could cost heavily.
• Product matters. Condition, design, energy efficiency, low maintenance and strong infrastructure will increasingly command premium valuation.

Author: Greg Remmers is a seasoned real estate broker and accomplished executive with over 25 years of leadership experience in the industry. As the Designated Broker and Chief Operating Officer of RE/MAX Fine Properties—one of the largest and most successful RE/MAX franchises nationwide—Greg drives growth, operational excellence, and a culture of high performance.