2026 Housing Market Outlook: Is a Gradual Thaw on the Horizon?

For would-be homebuyers, 2025 was a disappointing year. Stubbornly high mortgage rates suppressed demand for new homes, while supply was limited by a lock-in effect as many current homeowners remained reluctant to list their properties for sale when doing so would mean giving up low-rate loans secured during the pre-pandemic and pandemic eras. 

The perfect storm of low housing supply and high mortgage rates made homeownership unaffordable for many, causing the share of first-time home buyers to fall to a record low of 21% and pushing the typical age of new buyers to an all-time high of 40. 

The good news is, though, a new year is here. And, as the outlook for 2026 takes shape, there are optimistic signs that the market may be shifting. 

While neither a headline-grabbing crash nor another market boom is likely in 2026, most evidence points towards a slow return to a more stable market after years of uncertainty. 

Modest mortgage rate improvements may prompt some buyers to come off the fence

After mortgage rates repeatedly hit new record lows during the COVID-19 pandemic, surging inflation and higher benchmark rates set by the Federal Reserve helped push financing costs to recent highs. Many buyers have been understandably reluctant to take out loans with rates reaching as high as the mid-7s, but forecasters agree that some relief could be on the way.

While buyers are unlikely to see rates fall below 4.00% where they hovered for much of the time period between the 2008 crash and the end of the pandemic, experts are forecasting that rates could hover around 6.00% in 2026 and perhaps even drop as low as 5.9% by year's end.

While this isn't as dramatic a rate drop as many would-be buyers are hoping for, the National Association of Realtors estimates that rates declining to 6.00% could cause as many as 5.5 million buyers to come off the fence and move forward with a purchase -- including 1.6 million renters who have been sitting on the sidelines.

Some home-buyers are also betting on affordable-rate mortgages, as these loans can provide much more affordable monthly payments and are seen as lower-risk options with rates widely expected to decline in the coming years.

Stabilizing home prices should help improve affordability

With home prices largely flat in 2025, the rapid appreciation that occurred early in the pandemic appears to be at an end. In fact, 2026 appears poised to be a low-drama year for home prices. 

Projected home price increases range from around 1% to 2% in 2026, but with inflation and wages expected to increase at a faster rate, the inflation-adjusted cost of buying a home could decline for the second year in a row, giving buyers more breathing room. 

Data from the S&P Cotality Case-Shiller U.S. National Home Price Index, released in December, supports these predictions, with only a 1.4% annual gain reported in October and similar stagnant growth in September.

While affordability challenges won't disappear, especially for first-time home buyers, the modest price improvements projected for 2026, when combined with declining mortgage rates, will open up the door for more would-be buyers to make owning a home a reality.

Inventory gains will continue

Inventory has been a continued issue since the start of the pandemic, and the lock-in effect is playing a major role in limiting the number of existing homes available for sale. 

In fact, over 80% of current homeowners have mortgages below 6%, and many don't want to list their homes since doing so could sometimes mean doubling future financing charges. 

Still, there have been improvements and experts are projecting inventory gains for the third consecutive year in 2026, with the number of active listings expected to rise around 9% to 10% year-over-year. 

More choices for buyers could lead to a healthier market and improved affordability; however, the progress again will be slower than many hope, and the 2026 year could end up with for-sale inventory still around 12% below pre-2020 norms. 

New construction could provide more opportunities

While current homeowners may be reluctant to list properties, the good news is that builders are helping to fill the inventory gap -- especially in certain regions in the South. 

Many builders also recognize that affordability has become a pressing issue and have responded by offering smaller, more affordable new builds. This has driven the new home premium (the percentage difference between new and existing home prices) to record low levels.  

In some areas, the price per square foot is actually lower for new rather than existing homes, and builder incentives abound as many builders sharply increased their activity and now have inventory to move. 

How quickly will the market thaw?

With emerging trends showing slow but steady improvement, the big question is how quickly the market will thaw. Uncertainty over this question is high, which explains why there's wide variation in expert predictions on existing home-sales in 2026. 

In fact, while some experts are predicting just a 1.7% year-over-year increase in existing home sales, others expect 14% year-over-year growth. 

The optimistic view of the market in 2026 is based on expected declines in mortgage rates, inventory gains, and slow price growth while those projecting a less active market believe buyers are likely to continue holding out for a bigger rate drop or will be put off by prices that still remain well above pre-pandemic norms. 

As far as who turns out to be right, this will hinge on factors like whether buyers are ready to psychologically accept that rates in the 3.00% to 4.00% range are not coming back any time soon, as well as whether life changes like family growth or job shifts will begin to outweigh the costs of giving up low rates. 

What does all this mean for buyers?

So, what does all this mean for buyers? 

In sum, the good news outweighs the bad. Inventory is likely to increase, rates are likely to fall, and while home prices may increase in nominal terms, inflation-adjusted prices will likely decline. New construction presents exciting opportunities, and widespread projections that rates will continue to fall over time could make adjustable-rate mortgages an affordable loan option. 

So, while buyers may not get everything on their wish list as market improvements happen more slowly than they've been hoping for, all signs point to the fact that 2026 could present great opportunities for those who are ready to find a home of their own.