The best (and worst) housing markets for retirees in 2026

A GOBankingRates analysis using Zillow Research and 2023 ACS data ranks the 20 best and 20 worst U.S. housing markets for retirees in 2026, with data sourced and tabulated as of Dec. 18, 2025. The Midwest dominates the top 20—15 of the best markets are in Illinois, Indiana, Michigan, Ohio and Wisconsin—led by Saginaw, MI (1‑year home-value forecast +4.9%, 32.9% of households with retirement income, 22% of income required to afford a new home, income needed $48,048). California comprises 11 of the 20 worst markets, anchored by San Jose as the least affordable (1‑year forecast +0.8%, 18.9% retirement income households, 62% of income required, income needed $368,861). The ranking was constructed by equally weighting one‑year Zillow forecasts, share of households with retirement income, new‑homeowner affordability, and income needed to afford a new home.

Analysis

Market structure: Affordable Midwest metros (Saginaw, Sandusky, Kokomo) are winners for buy-to-live retirees, boosting local demand for healthcare, services, and entry-level new construction; forecasted 4–5% 1-year gains in some Midwestern markets imply modest pricing power for volume-focused builders (DHI) and regional lenders. Losers are high-cost coastal markets (San Jose, SF, LA) where 0–1% forecasts and 60–70% income-to-home ratios compress buyer pools, hurting luxury builders, coastal brokers, and institutional single-family rental (SFR) platforms that rely on scale in expensive markets.

Risk assessment: Key tail risks include a regulatory ban on institutional SFR purchases (headline risk; probability >10% in a politically charged year) and a mortgage-rate shock (+100–200bps) that would materially cut buyer affordability and force markdowns across both coasts and the Midwest. Immediate effects (days) will show repricing in SFR REITs and iBuyers; weeks–months will see flows into MBS/agency coupons and regional banks; quarters will reveal migration and demographic settlement patterns that determine longer-term municipal and healthcare demand.

Trade implications: Favor long exposure to volume/entry-level homebuilders (DHI) and apartment REITs (EQR/UDR) while underweight/short SFR REITs (INVH, AMH) and iBuyers (OPEN) that face regulatory and profitability risk. Use options to express convexity: buy 3–6 month puts on INVH/AMH (5–10% OTM) and call spreads on DHI (3–6 month) to capitalize on a potential mortgage-rate dip. Rotate into Midwestern regional-bank exposure (KRE, selective names) and short coastal luxury services/agents.

Contrarian angles: Consensus overlooks that a partial institutional ban could reroute capital into agency MBS and multifamily BTR, tightening MBS spreads and lifting MBB/TBA performance in 1–3 months; similarly, smaller Midwestern towns have structural downside (population decline, tax base erosion) that could cap upside—favor markets with >30% households on retirement income only if local payrolls or healthcare infrastructure are stable. Historical parallel: post‑GFC institutional SFR entrants ultimately concentrated and professionalized the space; a ban would instead accelerate consolidation into multifamily and MBS, creating arbitrage windows.

Key Decisions for Investors

• Establish a 2–3% portfolio short on SFR exposure: short INVH and AMH (split 50/50) or buy 3–6 month puts (5–10% OTM) totaling equivalent notional; thesis: regulatory ban risk + slowed coastal demand; exit if legislation probability falls below 5% or stocks outperform by 15% in 3 months.
• Initiate a 2–3% long in D.R. Horton (DHI) via a 3–6 month call spread (buy ATM, sell +15% strike) to capture Midwest/entry-level demand; stop-loss if 10‑yr UST yield rises >100bps from current level or DHI declines >12% in 6 weeks.
• Pair trade: go long apartment REIT EQR (1.5%) and short INVH (1.5%) for 6–12 months to play shift from SFR to multifamily; rebalance if SFR REITs cut guidance or EQR same-store NOI growth <1% YoY.
• Overweight regional bank exposure (KRE 1–2%) to benefit from localized mortgage origination servicing in Midwest metros; trim if national unemployment rises >1.0ppt or NIM compression >20bps quarter-over-quarter.
• Buy 2% allocation to agency MBS ETF (MBB) for 1–3 months as a defensive yield play if institutional SFR flows redirect into MBS; liquidate if Fed signals imminent aggressive QT or 10‑yr UST >4.25%.