Affordability to improve as prices cool and incomes rise, but recovery remains uneven
The United States housing market is expected to make incremental progress in 2026, with affordability inching higher and regional differences persisting.
According to First American deputy chief economist Odeta Kushi, “mortgage rates [will hold] in the low 6% range, but we could see movements lower from today’s levels toward six.”
She added, “That would be helpful, but it would not be enough to jumpstart the market on its own. The heavy lifting comes from moderate home-price growth as inventory improves, paired with continued income gains.”
Kushi’s commentary, part of her “Six for 2026” forecast, emphasized that affordability gains would be driven more by “prices cooling and paychecks rising, rather than because financing suddenly gets cheap.” She noted that First American’s house price index shows appreciation at its slowest pace since 2012.
“If that pattern continues into 2026, affordability should keep inching higher, particularly in markets with more active inventory where sellers are trimming prices to bring buyers off the sidelines,” she said.
Demographics and “life happens” to drive demand
Kushi highlighted that pent-up demand remains strong among both first-time and repeat buyers. “The pre-pandemic five-year average for existing-home sales was 5.4 million (SAAR).
Averaging 2022 through 2025 leaves us roughly 4 million sales short of that benchmark, which is a lot of missing buyers and sellers,” she said.
Demographics are expected to play a significant role, with nearly 52 million Americans in their thirties—many of whom are still renting.
“That underscores how large the pool of potential first-time buyers is as life stages line up with housing needs,” Kushi said.
She pointed to First American research indicating that Millennials alone are projected to add about 10.6 million owner households over the next 25 years, with Gen Z following behind.
“Even if mortgage rates stay in the low-6% range, weddings and separations, growing families, job moves, caregiving, and downsizing will continue to drive sales activity. Transactions grind higher as 2026 unfolds because life, and life events, keep happening,” Kushi said.
Inventory trends and regional divides
Inventory has shown signs of recovery, with active listings up 13% year-over-year in October 2025. However, the market remains far from “normal”—existing-home sales averaged about 4 million annualized in 2025, still well below the pre-pandemic five-year average of 5.4 million.
“Supply conditions still differ by region,” Kushi said. “The Midwest and Northeast tend to be scarcest on both resale and new-home inventory, which supports quicker time to contract and fewer concessions heading into 2026.”
On the other hand, “many Southern and Western metros have added more supply,” with 22 of the top 75 markets now exceeding their 2018–2019 inventory averages, all located in the South or West.
No foreclosure wave in sight
Despite some stress in overheated markets, Kushi dismissed the likelihood of a foreclosure wave.
“A true foreclosure wave usually needs two triggers at once: loss of income and a lack of equity. The labor market has cooled but not cracked, and homeowners still hold a very large equity cushion, so the risk remains contained,” she said.
New construction’s ongoing advantage
Builders are expected to keep an advantage over the resale market, as incentives and standing inventory attract buyers.
“New-home sales are likely to hold an edge over the existing market in 2026. Builders can adjust quickly with targeted buydowns, closing-cost help, or price trims,” Kushi said.
While 2026 is unlikely to deliver a dramatic rebound, industry professionals should expect steady progress driven by cooling prices, rising incomes, and persistent regional differences.
As Kushi put it, “The housing market won’t return to normal in 2026, but it should bring further progress as life events pull more buyers and sellers into action.”
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