The U.S. housing market closes 2025 on a familiar note. Mortgage rates averaged 6.64 percent for the year, existing-home sales languish near a thirty-year low of 4.3 million units, and the median sales price sits just above $410,000. Most important, median household income hovers around $83,700, far short of the roughly $110,000 needed to comfortably afford that median-priced home at current rates. After five years of rapid price appreciation and wage growth that has failed to keep pace, millions of would-be buyers remain sidelined.
Yet the consensus among economists, including the National Association of Realtors, Fannie Mae, the Mortgage Bankers Association, Zillow, and independent analysts, points to 2026 as the year the market finally begins a cautious thaw. This outlook synthesizes the latest December 2025 projections with a deliberate adjustment for the persistent wage-price gap that continues to suppress demand. The result is neither the stagnant scenario offered by some conservative forecasters nor the robust rebound hoped for by optimists. Instead, 2026 looks set to deliver modest, uneven improvement across most metrics.
Key Forecasts for 2026
Mortgage Rates
We expect the average 30-year fixed rate to fall to 6.2 percent in 2026 and end the year near 6.0 percent. Two to three additional Federal Reserve rate cuts after the widely anticipated December 2025 move, combined with stable inflation near 2.5 percent, should allow long-term borrowing costs to drift lower. Even so, rates will remain well above the sub-4 percent levels seen in 2020–2021, keeping monthly payments elevated by historical standards.
Home Prices
National home prices are projected to rise 2.5 percent, pushing the median existing-home price to approximately $421,000. This pace falls below expected wage growth of 3.6 percent and should produce a small improvement in real purchasing power. Growth will not be uniform. The Northeast and Midwest, where inventory remains constrained, should see price increases of 3 to 5 percent. The South and West, beneficiaries of strong new construction and returning listings, are likely to record gains of only 1 to 2 percent, with select Sunbelt markets posting flat or slightly negative annual changes.
Existing-Home Sales
Sales volume is forecast to climb roughly 10 percent to 4.7 million units. That figure remains 20 percent below the 2021 peak but represents a meaningful step up from the depressed levels of 2024 and 2025. New-home sales should rise about 6 percent, supported by builder incentives and slightly lower financing costs.
Inventory and Months’ Supply
Active listings are expected to increase 12 percent nationally, pushing months’ supply to approximately 4.5 by year-end. A reading near 4.5 months is generally considered balanced, a sharp improvement from the sub-3-month conditions that have characterized much of the past four years.
Rents
Multifamily rents should grow between 0 and 0.5 percent nationally as a record wave of roughly 700,000 new apartment units reaches completion. Single-family rental growth will likely outpace multifamily rents by 1 to 2 percentage points, reflecting continued strong demand for houses with yards.
The Persistent Affordability Challenge
Even with these improvements, the core problem remains: wages have not caught up with the price surge that began in 2020. Home prices have risen 40 to 50 percent since the start of the decade, while real median household income has increased only about 20 to 25 percent. In 2026, a family earning the projected median income of $86,800 will still need to devote roughly 32 percent of gross income to principal, interest, taxes and insurance on a median-priced home, well above the 28 percent threshold traditionally viewed as affordable.
The National Association of Realtors’ housing affordability index is expected to improve from 104 in late 2025 to roughly 112 by the end of 2026. An index above 100 indicates that a median-income family can qualify for a mortgage on a median-priced home, but the margin is thin and assumes a 20 percent down payment that many younger buyers do not possess. Roughly 58 percent of U.S. households will still be priced out of a $300,000 starter home, and first-time buyers, now averaging age 40, will continue to represent only about one-fifth of transactions.
Three Plausible Scenarios for 2026
Base Case – Cautious Recovery (60 percent probability)
The economy grows 1.8 to 2.2 percent, unemployment stays below 4.5 percent, and the Federal Reserve delivers two to three cuts. Mortgage rates settle near 6.0 percent, sales reach 4.7 million, and prices rise 2.5 percent.
Upside Scenario – Stronger Rebound (25 percent probability)
Wage growth accelerates to 4.5 percent or higher, consumer confidence surges, and the “lock-in effect” unwinds faster than expected. Mortgage rates dip below 5.8 percent late in the year, sales approach 5.2 million, and prices climb 3.5 to 4 percent.
Downside Scenario – Prolonged Stagnation (15 percent probability)
A mild recession pushes unemployment above 5 percent, the Fed pauses or reverses course, and mortgage rates remain stuck between 6.3 and 6.7 percent. Sales stall near 4.2 million, and price growth slows to 0.5 percent or less.
Implications for Market Participants
Prospective buyers will find 2026 the most favorable entry point since 2021. More listings, slower price growth, and modestly lower rates should translate into greater negotiating power and smaller monthly payment increases versus 2025. First-time buyers should focus on markets with rising inventory and consider FHA or other low-down-payment programs.
Sellers in the Northeast and Midwest can expect steady demand and limited competition, while those in parts of Florida, Texas, Arizona and Idaho may need to price aggressively or offer concessions to move properties quickly.
Renters face a relatively benign environment. Near-zero multifamily rent growth will free up cash flow for savings or alternative investments, potentially strengthening their position for an eventual home purchase.
Investors seeking short-term flips will find opportunities in cooling Sunbelt markets where prices have softened, while long-term buy-and-hold investors should favor supply-constrained regions where rents and values are likely to outpace inflation.
Conclusion
The U.S. housing market in 2026 will not return to the easy-money conditions of the early 2020s, nor will it suffer a sharp correction absent a significant recession. Instead, it is poised for a gradual, regionally varied recovery that offers relief without euphoria. Affordability will improve at the margins, yet the structural gap between wages and home prices will persist until either supply expands dramatically or real income growth accelerates beyond current trends. For most Americans, the dream of homeownership will remain attainable only with careful planning, strategic location choices, and a bit of patience.
