For more than three years, things have been bleak for homebuyers. But by 2026, things may get a little easier.
Housing affordability is expected to improve next year as mortgage rates edge down and home price appreciation slows. Those conditions — if they hold — could get more buyers and sellers off the sidelines and into the market during the traditional spring homebuying season, and help home sales post their first major jump since 2023, when they fell to levels not seen since the mid-1990s.
Economists and experts who spoke to Yahoo Finance said that ultimately, next year’s affordability improvements could be the first step in a longer period of market normalization. Given the dramatic increases in prices and mortgage rates in recent years, many buyers will remain priced out of the market.
“This is actually just the beginning of a long process,” said Chen Zhao, director of economic research at brokerage Redfin. “For a lot of people, they still don’t necessarily have access to the real estate market.”
Read more: Is now a good time to buy a home?
When many people think of options to make housing more affordable, they often think of events like the global financial crisis, which caused U.S. home prices to fall an average of 27% between 2006 and 2012.
2026 is not ready yet.
While average home prices are likely to fall slightly next year, few housing experts expect a collapse because the country still has a housing shortage.
Instead, most of the affordability gains are likely to come through slightly lower mortgage rates and house price increases at a slower pace than average wage growth.
Many economists predict home prices will rise only modestly by 1% to 3% next year. That gives income growth of 3% to 4% a year a chance to outpace home price appreciation for the first time in years. Home prices are also falling in some markets, particularly parts of the Southeast and the Mountain West.
Lower mortgage rates will also help improve affordability, and are a real possibility. Interest rates have hovered around 6.2% in recent months, and many economists expect rates to average around 6% next year. That’s down from this year’s average of about 6.6%.
“Things will improve throughout the year,” said Danielle Hale, chief economist at Realtor.com. “We expect monthly payments to decline for the first time in five years.”
Even a relatively small drop in mortgage rates can translate into meaningful changes in monthly payments. A homeowner with a $320,000 mortgage with an interest rate of 6.8% (the rate at the beginning of the year) would have monthly payments of approximately $2,086. At today’s interest rate of 6.2%, they would pay $1,960.
“The closer you get to 6%, the more activity there is,” said Mike Simonsen, chief economist at real estate brokerage Compass.
More inventory can help stimulate the market by giving buyers more choices. Inventory for sale has improved this year, and most economists predict it will grow significantly again next year, especially as sellers who tried and failed to market their homes in 2025 will try again in the spring.
Simonson estimates that about 150,000 sellers tried to sell their homes this year but gave up. If interest rates stay low, many may return this spring, helping to improve for-sale inventory levels and the size of the buyer pool if they move, he said.
Read more: When will mortgage rates fall back to 6%?
Huntsville, Alabama, USA park and downtown cityscape at dusk. ·Sean Pavone via Getty Images
Steve Stinson, an agent with Keller Williams Realty in Huntsville, Ala., said home price appreciation has been relatively modest in recent years as new construction activity has surged. The slowdown has caught some sellers trying to sell for top dollar this year off guard. He expects many to return in the spring with more realistic pricing expectations.
“I think sellers will have a better understanding of the market next year,” Stinson said. “This year feels like a ‘let’s put it out there and see what happens’ kind of year.”
Stinson said Huntsville has been growing rapidly, but so has new homes, and has been a market that has tilted slightly toward sellers in recent years. But as housing supply exceeds demand, buyers in many other cities across the Southeast are starting to buy homes, while much of the Northeast and Midwest remains controlled by sellers.
Regional disparities, driven in large part by new construction and the relocation of buyers seeking better affordability, have caused home prices to rise rapidly in many Northeastern and Midwestern cities and depressed prices in markets like Denver and Phoenix, as well as Texas and Florida.
That divide likely won’t change much next year.
Realtor.com sees cities like Hartford, Conn., Rochester, N.Y., and Grand Rapids, Mich., leading the nation in measures such as price appreciation and home sales, while in many Florida markets those measures are more likely to decline.
Meanwhile, Redfin believes New York City, Syracuse, N.Y., and the suburbs of Cleveland are most likely to heat up in 2026, while markets like Nashville, Tenn., coastal Florida and parts of Texas may continue to cool.
Still, some markets that have cooled in recent years may see more stable prices next year. Zillow expects home prices to fall in only 12 of the nation’s 50 largest metropolitan areas next year, down from 24 this year.
In Chicago’s western suburbs, home prices will continue to rise in 2025 due to steady demand from buyers seeking more space and an easy commute to the city via public transportation, said Brandon Blankenship, a real estate agent with Keller Williams Premiere Properties in Wheaton, Ill. He doesn’t see much of that changing in 2026, especially if lower mortgage rates encourage more buyers to enter the market.
“Things are starting to calm down as we go through this pandemic, but prices continue to rise,” Blankenship said. “I think the market is going to be very strong next year, especially if interest rates move in the right direction.”
Claire Boston is a senior reporter at Yahoo Finance, covering housing, mortgages and home insurance.
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