6 housing market predictions for 2026, according to an economist

The new year is just around the corner, which means it’s time to share my top predictions for the year ahead. Yogi Berra famously said that making predictions is difficult, especially when it comes to the future, but we should still try.

6 housing market predictions for 2026 from an economist

Here are my calls on the most important trends for the housing market in 2026:

1. Existing home sales will (barely) pick up

Home sales have been hovering around generational lows for three years. As we head into 2026, there is little reason to expect a sharp recovery, but the pieces are in place for a modest rebound.

Inventory levels are higher than they have been since 2019, and mortgage rates are lower than they have been since 2022. That combination should be enough to boost existing home sales next year — just not by much.

2. House prices will remain approximately the same

I expect house prices to remain relatively flat in 2026. The main reason is higher inventory, which puts downward pressure on prices. The Case-Shiller Home Price Index even showed some seasonally adjusted declines last summer, although that trend faded in the fall.

Why don’t I expect prices to drop further? Sellers have proven to be very responsive to market conditions.

As the market shifted toward buyers, many homeowners who didn’t get the offers they wanted simply delisted their homes, while others decided not to list at all. That restraint helped slow the rapid inventory build-up we saw in early 2025, keeping prices from falling much lower.

3. Inventory will rise to pre-pandemic levels

Inventory, or the number of active for-sale listings, will likely finally return to pre-pandemic levels nationwide in 2026, perhaps as early as the spring sales season. By 2025, it’s up significantly, and the number of canceled listings suggests there’s a shadow supply of homes whose owners want to sell but are waiting for what they think is better timing.

I also expect a repeat of the trend of “discretionary sellers”: homeowners who want to sell, but only if they get the right price. This tendency to test the waters and hold on to a strong bid should increase the average time on market, which in turn will increase the total number of listings at any given time.

Higher inventory gives buyers a better chance of finding the right home – and a little more leverage at the negotiating table.

4. Home ownership will decline

At current prices and interest rates, homeownership remains out of reach for many middle-class Americans, who under other circumstances would have already purchased their first home. Meanwhile, rental growth has slowed sharply, allowing many of these potential buyers to bide their time and continue renting comfortably.

Add to that the growing share of renters who are choosing a single-family home because they are looking for the space and lifestyle of a home, but don’t want to wait until they can qualify for a mortgage.

5. We avoid a recession in 2026

The US economy has weathered a number of negative shocks in 2025, leaving the economy shaky but still standing. Wage growth has stalled, but that appears to reflect both a shrinking labor supply and falling demand — and initial unemployment claims never rose sharply.

Following trade policy turmoil early this year, US companies have stunningly exceeded earnings expectations, while mentions of tariffs and trade issues have become less common in earnings reports. Looking ahead, tariff relief seems likely as lawsuits and a steady stream of new trade deals will ease some of the costliest restrictions imposed in early 2025.

6. Mortgage interest rates will decrease slightly

Interest rates are likely to remain below 6.25 percent for most of 2026 and could even fall slightly below 6 percent. The Federal Reserve’s shift to a rate-cutting cycle, combined with slower economic growth, has pushed 10-year Treasury yields to around 4 percent, while the spread (how much higher the mortgage rate is) has gradually returned to its normal range of 2 percent or less.

I expect this trend to continue as refinancing risk on mortgage-backed securities gradually decreases. That said, hopes for sharply lower mortgage rates have been dashed repeatedly since 2022, so buyers shouldn’t expect substantial declines in the coming year.

To sum it all up: I expect a mostly stable year, with gradual, modest improvement in the housing market’s key metrics: inventory, sales and mortgage rates.