Will 2026 Mark the Housing Market’s Comeback?
For the past several years, buying a home has felt uniquely difficult. Prices surged, mortgage rates more than doubled from pandemic lows, inventory stayed tight, and many buyers were left on the sidelines wondering when, if ever, conditions would improve.
Many expected 2025 to be the comeback year for the housing market with improved affordability and expectations of lower mortgage rates. While 2025 did not turn out to be the year for housing market recovery, 2026 is shaping up as a potential inflection point. Not a return to the ultra-easy housing market of the early 2020s, but something more balanced: better affordability at the margin, more choices for buyers, and a market that feels less punishing and more navigable.
That improvement will not come from one dramatic shift. Instead, it will be the result of several slow-moving forces finally lining up.
Mortgage rates will likely hold steady above 6%, but will be lower compared to last year
Mortgage rates have been the single biggest obstacle for buyers since 2022. After bottoming out near 3% during the pandemic, rates climbed rapidly as inflation surged and the Federal Reserve tightened monetary policy. During much of 2024 and 2025, rates fluctuated between the mid-6% and low-7% levels.
Looking ahead to 2026, the Federal Reserve is expected to be in a holding pattern with respect to rates, especially in the first half of the year as inflation and unemployment remain steady. Even if the Fed implements rate cuts, they are expected to be few and not likely to impact mortgage rates in a significant way. Mortgage rates don’t need to fall dramatically to help affordability; even modest declines can materially improve monthly payments. A shift from 6.8% to 6.0%, for example, can lower payments enough to bring some sidelined buyers back into qualification range. According to Veros’ forecasts, mortgage rates are expected to stay above the 6% mark through 2026.
More options for buyers as inventory slowly improves
One of the defining features of the post-pandemic housing market has been a lack of choice. The lock-in effect, where existing homeowners with ultra-low mortgage rates were reluctant to sell, severely constrained inventory. That effect isn’t disappearing overnight, but in 2026 it is likely to weaken because life events (job changes, aging, family needs) eventually override rate lock-in, new construction has been gradually increasing, especially in the Sun Belt, and investors are less aggressive buyers than they were in 2021–2022. More homes for sale do not necessarily mean a flood of inventory, but it does mean buyers have more leverage. Fewer bidding wars. More time to decide. Greater ability to negotiate on price, repairs, or concessions. That shift in market psychology alone can make buying feel far less daunting.
Home price growth will be slower
The era of double-digit national home price growth is over. While prices remain high, the rate of growth has slowed significantly in most markets. Looking toward 2026, Veros forecasts a 1.3% appreciation nationally, with flat or modestly declining prices in some overheated markets and stronger performance in areas with relatively affordable housing and tight supplies. This matters because affordability improves not only when prices fall, but also when prices simply stop racing ahead of incomes. A period of slow price growth gives wages time to catch up.
Expected increase in home sales activity
After several years of depressed transaction volume, housing activity is expected to gradually rebound. In 2026, more sellers are likely to re-enter the market, buyers who delayed purchases may return as conditions normalize, and it is possible that lenders and brokers may compete more aggressively on pricing and service.
Slower population growth could ease demand pressures
Another subtle but important factor is demographics. U.S. population growth has slowed compared to pre-pandemic trends, due to lower birth rates and reduced immigration. While household formation continues, slower population growth means less incremental demand pressure on housing. This doesn’t eliminate housing shortages, but it does take some heat out of the system.
Why 2026 won’t be perfect and the risks to watch
Despite these positives, 2026 is not guaranteed to be a smooth landing for housing. If the labor market slows too much, job losses or stagnant wage growth could offset gains in affordability. Buying a home requires confidence in future income, and a soft labor market can keep buyers cautious.
The U.S. unemployment rate was about 4.4% in December 2025, up modestly from earlier in the year and higher than the 3.5%–4.0% range seen in the pre-pandemic years but still historically low outside recessions. Payroll growth has slowed sharply, with the economy adding only around 50,000 jobs in December 2025. That represents the weakest annual job growth since the COVID-19 downturn and far below the more robust pace of the past decade. Meanwhile, initial claims for unemployment benefits hovered near 209,000, a level that is low by historical standards, suggesting layoffs have not surged widely despite high-profile announcements from some large employers. Taken together, these data point to a labor market that is no longer red-hot but also not in freefall: unemployment remains comparatively low, hiring continues (albeit slowly), and layoffs have not reached recessionary levels.
Further, if inflation remains sticky, interest rates may stay higher for longer. Even without additional hikes, elevated inflation can prevent meaningful declines in mortgage rates and erode real income growth. According to the latest Consumer Price Index (CPI) data, headline inflation was 2.7% year-over-year in December 2025, unchanged from recent months, while core inflation (excluding volatile food and energy prices) was 2.6%. Despite the overall moderation, inflation pressures have proven somewhat sticky in certain categories, especially housing and food. For example, shelter costs and food prices have continued to rise faster than the overall index, reflecting ongoing cost pressures in areas that matter most to consumers.
Additionally, national averages hide local realities. Some markets continue to face severe inventory shortages and strong price pressure, while others are experiencing flat or declining prices, longer time on market, and increased seller concessions. Local job growth, population trends, new construction, and exposure to specific industries all shape housing outcomes in ways that national averages cannot capture. As a result, buyers and sellers experience very different markets depending on where they are, even when headline national indicators appear stable.
The bottom line
2026 is unlikely to bring a dramatic housing crash or a return to ultra-cheap mortgages. But it may mark a transition from a frozen market to one that is moving, even if slowly.
More inventory, slower price growth, steadier mortgage rates, and less frenzied competition all point toward a market that feels more workable for buyers. The downside risks are real, but for the first time in years, the forces shaping housing are moving in a direction that could finally make buying a home feel achievable again.
Not easy. Just easier.
About Reena Agrawal, Senior Research Economist
Reena Agrawal received her PhD in Economics from Vanderbilt University and MA in Economics from The Ohio State University and has several years of industrial experience in economic research and analysis.
