South Bay Housing Market Update 2026 | Inventory Trends

South Bay Real Estate Market Update 2026: Inventory Is Tightening While Demand Returns

Compass Chief Economist, Mike Simonsen, breaks down the current market inventory - and what that means for us and our clients. Watch his summary and takeaway below for a full understanding. 

Mike Simonsen is the Chief Economist at Compass and founder of Altos Research. He is one of the leading voices in real-time housing market data, providing weekly insights used by agents, investors, and industry leaders to track trends as they happen—not months later.

The South Bay real estate market is shifting again, and most people are focused on the wrong signal.

Nearly 87,000 homes went under contract this week nationwide, up 2% compared to the same time last year. As mortgage rates ease to their lowest level in over a month, buyers are quietly stepping back into the market. In fact, rates today are roughly 60 to 70 basis points lower than a year ago, making monthly payments about 6% more affordable.

Demand is improving.

But that is not the story driving today’s market.

Why Inventory Is Tightening in 2026

The real headline is supply.

Housing inventory is up just 2.7% year over year, a dramatic slowdown from the 30% growth we saw at this time last year. In several major markets, including Dallas and Denver, inventory is already lower than it was a year ago. Florida markets are seeing fewer homes available, and much of the Northeast remains extremely constrained.

New listings reinforce the trend.

Only 88,000 homes hit the market this week, which is 3% fewer than last year and well below historical norms. For context, we were seeing over 100,000 new listings during more normalized market cycles.

The reason is simple. Most homeowners are locked into historically low mortgage rates, sitting on strong equity, and have little incentive to sell.

This is not a market where demand has disappeared.
This is a market where supply is being held back.

What This Means for the South Bay Real Estate Market

For homeowners in the South Bay, including Palos Verdes, Manhattan Beach, Redondo Beach, and Torrance, this shift matters.

Our local market has always been supply-constrained, and when inventory tightens further while demand stabilizes, it creates a very specific dynamic:

Well-positioned homes outperform.

We are not seeing signs of distress-driven price declines. The median list price nationally is down just 1.2% year over year, which points to stability, not correction.

At the same time, affordability is quietly improving as incomes begin to outpace home prices.

This combination is important:

• Buyers are regaining confidence
• Inventory is not keeping up
• Competition is beginning to rebuild for the right homes

A Segment to Watch

There is one area of the market showing early signs of pressure.

Some FHA buyers who purchased since mid-2022 are experiencing higher payments with limited equity growth, particularly in markets where prices have flattened. While this represents a small portion of the overall housing market, it is a segment worth monitoring.

For most homeowners, however, the story remains strength and stability.

Is Now the Right Time to Sell in the South Bay?

This is where strategy becomes everything.

In a market defined by constrained inventory and selective demand, the difference between sitting and selling comes down to:

• Pricing strategy
• Presentation and preparation
• Marketing exposure and reach

Homes that are aligned with buyer expectations are not just selling. They are outperforming the market.

Homes that are not are being overlooked.

The Takeaway

The 2026 housing market is not being driven by weak demand.

It is being shaped by limited supply.

And in a supply-constrained environment like the South Bay, that creates opportunity for sellers who position their homes correctly.

Explore Your Local Market

Want to understand how this is impacting your specific neighborhood?

Explore our South Bay neighborhood guides:

• Manhattan Beach
• Hermosa Beach
• Redondo Beach
• Palos Verdes Estates
• Rolling Hills Estates
• Rolling Hills (Yes they're different!!)
• Rancho Palos Verdes
• Torrance

Or get a personalized home valuation to see how today’s market conditions are impacting your property. Click here for a personalized home valuation.

If you are thinking about selling, the window is shifting.

The homes that succeed in this market are not the ones that simply list. They are the ones that launch with a clear strategy behind them.

Let’s map out what that looks like for your home. Click here to directly message us!