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Residential RoundUP 2026 Dean Wehrli, Ph. D.

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Presentation Summary

This video features Dean Wehrli, PhD, from John Burns Consulting, providing a data-driven analysis of the national and Northern California housing markets for 2026. Wehrli explores the “crushing” reality of housing unaffordability, the strategies home builders are using to survive, and long-term projections through 2028.

Major Topics and Timestamps

TimestampTopic
00:01:16.880National Economic Overview (Job & GDP Growth)
00:05:12.400The Impact of AI Spending on Northern California
00:06:29.199National Housing: Sales Volumes and Mortgage Rates
00:10:09.200Sacramento Regional Trends: Sales and Pricing
00:15:01.600Inventory and Months of Supply Analysis
00:18:59.679Affordability Crisis: The “Punch in the Throat”
00:30:18.399Market Segmentation: Affluent vs. Entry-Level Dynamics
00:33:48.799Builder Strategies: Solving for Price
00:41:56.160Recap and Projections through 2028

Summary of Major Points

The Affordability Crisis

Wehrli describes current market conditions as a “punch in the throat” regarding unaffordability.

  • The Monthly Payment Gap: While home prices have risen significantly (e.g., ~43% in Folsom since 2019), the monthly payment for those same homes has skyrocketed by 82% due to higher mortgage rates.
  • Income Lag: Household income growth has failed to keep pace with price growth and has “badly lagged” mortgage payment increases.
  • Regional Disparity: The Bay Area remains the most unaffordable, with San Francisco showing an 87% “Burns Affordability Index” (BAI).

Sacramento as the Regional Leader

Sacramento has become the “vast leader” for new home activity in Northern California7.

  • Volume: Greater Sacramento is expected to see roughly 6,500 to 6,600 new home sales in 2026.
  • Bay Area Augmentation: Demand is bolstered by Bay Area buyers who are priced out of their local markets but can still afford Sacramento, even with return-to-office mandates pulling some back.

New Home Builder Strategies

To combat high interest rates and falling affordability, builders are “solving for price” through several tactics:

  • Incentives and Buy-downs: Large builders are aggressively using mortgage rate buy-downs (e.g., offering 4.875% rates) to lower monthly payments for buyers.
  • Shrinking the Product: Builders are moving toward smaller square footage, higher density (smaller lots), and lower “spec” levels (more basic finishes) to keep total costs down.
  • Adjustable Rate Mortgages (ARMs): There is a slight uptick in ARM usage, though nothing approaching the levels seen in 2004–2006.

Market Stability and Supply

Despite high prices, the market remains “constrained” rather than crashing.

  • Months of Supply: Sacramento sits at approximately 2.25 months of supply, which is well below the national average of 4.5 months.
  • “Golden Handcuffs”: Existing homeowners are staying in their homes longer to keep their low (2–3%) mortgage rates, which continues to limit resale inventory.

Conclusions

  • Near-Term Pain, Long-Term Recovery: Wehrli projects a “modest downturn” in prices through 2026, with a return to positive growth expected by 2027.
  • A Bifurcated Market: The most affluent buyers are often paying cash and remain active, while entry-level buyers are being winnowed out by crushing monthly payments.
  • AI Propping Up the Bay Area: Massive business spending on AI (trillions of dollars nationally) is “goosing” the Northern California economy and propping up GDP growth in San Jose and San Francisco.
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