Housing Market Set for Improvement in 2026 as Buyers’ Incomes Catch Up
As predicted by Realtor.com, the forecast calls for a fairly positive but not overenthusiastic housing market in 2026. A silver lining perceived on the horizon comes with a dark cloud of economic uncertainty that could overshadow potential gains, it cautioned.
On the positive side, the report foresees that mortgage rates, which fell from 6.6% to 6.3% by the end of 2025, will remain at the lower level in 2026, while the median price appreciation of existing homes will improve from 2% to 2.2%.
Annual sales of existing homes are expected to rise from 4.07 million to 4.13 million in 2026 — representing a "small but meaningful gain from 2025’s near 30-year low” — but still well below normal. Single-family starts, which slipped by 4.3% in 2025 to 0.97 million, are predicted to climb by 3.1% to 1 million. And the inventory of existing homes for sale is likely to fall from 15.2% in 2025 to 8.9% in 2026, averaging 4.6 months of supply.
Nevertheless, a drop in the homeownership rate from 65.1% in 2025 to 64.8% in 2026 indicates the challenges potential buyers still face. And even if sales improve, the gain will be held back by high prices and still elvevated mortgage rates that reduce affordability, presenting a continuing obstacle to homeownership for younger and first-time buyers.
Data shows that four out of every five homeowners pay mortgage rates of less than 6%. “As a result, turnover will be limited with moves likely to be spurred by life necessities such as job or family changes,” the report commented.
It noted that even though home prices are rising, the increase is less than the rate of inflation. Effectively, real, inflation-adjusted home prices will slip for the second year in a row, “meaning that it takes a smaller chunk of each paycheck to buy a home. The slow normalization helps buyer incomes catch up," according to Realtor. In fact, monthly home payments are expected to fall 1.3% over the year – the first fall since 2020 and the first time since 2022 that such payments have fallen below the maximum 30% of household income standard.
New construction was hurt by tariffs in 2025, forcing some builders to offer significant incentives to buyers. Nevertheless, the report sees opportunities in the future.
“New construction has emerged as an affordable alternative to resale homes, with the price per square foot of new builds actually falling below that of existing homes," Realtor commented.
"Builders are motivated sellers—and they provide healthy competition to sellers in the resale market, offering smaller and more affordable homes such as townhomes and rowhomes, which have been growing in popularity."
It also emphasized that national data does not necessarily reflect local situations. Annual sales growth in 2026 is expected to slip by as much as 13.6% in Allentown and by double-digits in Greensboro, Poughkeepsie, NY and Worcester, MA — even as many of the same cities show improved annual price growth. The changes in many other cities are much lower.
On the other hand, Toledo is expected to lead the nation in annual price growth of 13.1%, followed by Syracuse (12.4%), Scranton (10.9%) and Rochester (10.3% — even though some of the same cities saw lower sales growth in 2025. In some cases, like Cape Coral, Colorado Springs, Denver, Daytona Beach and Orlando, sales growth and prices are actually expected to fall.
At the same time, risks abound, including the softening job market as companies reduce hiring, leading to higher unemployment, the need for Congress to reauthorize the federal budget in January after provoking a shutdown in November and uncertainty over who will lead the Fed.
“While a full-blown recession is not the base case, the economy is in a period of accelerated adjustment where a ‘misshift’ in policy or sentiment could cause a temporary setback that would have implications for the housing market,” the report noted.
Source: GlobeSt/ALM