After years of stagnation characterized by steep home price increases and constrained sales, the US housing market is poised for gradual adjustment in 2026. The persistence of elevated borrowing costs combined with rising home values has kept many prospective buyers on the sidelines, reinforcing a challenging affordability landscape. Nevertheless, economists express a cautiously optimistic outlook, suggesting that income growth may begin to surpass the pace of home price escalation, potentially improving affordability for a segment of American buyers.
Market observers have coined 2026 as a pivotal moment, with real estate platforms like Redfin labeling it "The Great Housing Reset," while Compass anticipates the onset of a "new era" in housing conditions. Even modest elevations in transaction volumes would mark a reversal from recent trends of historically low sales. This anticipated shift coincides with announcements from the Trump administration signaling a focus on enhancing housing affordability, although firm policy details have yet to be disclosed.
Mike Simonsen, chief economist at Compass, highlights the recent market dynamics as a period where transaction activity dwindled but price appreciation remained relentless. He projects that the next phase will feature sufficient inventory nationwide to enable an increase in home sales starting in 2026. Several factors may contribute to this development; however, Simonsen suggests that government reforms are unlikely to be a major catalyst within the year.
Examining the trajectory of home prices reveals a dramatic increase since the onset of the COVID-19 pandemic. From early 2020 through the third quarter of 2025, national home prices surged by nearly 55%, according to a report from the National Association of Homebuilders. Underlying supply constraints have been compounded by homeowners reluctant to sell properties encumbered by mortgage rates locked in at historic lows years prior, resulting in diminished listings and elevated pricing pressures.
Simonsen contends that as mortgage rates now exceed 6%, more homeowners may reconsider their selling decisions in 2026, potentially contributing additional inventory and alleviating upward price pressures. Some regional signs of easing affordability emerged in 2025, with states such as Florida, Texas, and California experiencing average home price declines from prior peaks. Nonetheless, a nationwide substantial decrease in home prices is not expected in 2026. Rather, Simonsen forecasts a virtually flat market, anticipating a modest 0.5% increase in home values.
Despite this stabilization, affordability challenges will likely remain for many buyers next year. The most effective long-term solution to enhance housing affordability remains increased home construction, an area where the supply has not kept pace with demand. Simonsen explicitly notes a lag in housing development relative to needs.
Turning to mortgage interest rates, the recent trend has been a decline throughout the latter half of 2025, with the average 30-year fixed mortgage falling to approximately 6.18%, down from nearly 7% at the year's start. Simonsen anticipates that mortgage rates will remain above 6% in 2026, though this outlook could shift if a weakening labor market or diminishing inflation prompt the Federal Reserve to enact more aggressive rate cuts. As mortgage rates track yields on the 10-year Treasury—rather than direct Federal Reserve policy—changes in monetary policy could influence borrowing costs indirectly.
Jason Waugh, president of Coldwell Banker Affiliates, emphasizes the critical role of consumer confidence in the housing market. Should labor market conditions deteriorate further, potential buyers may hesitate to commit to home purchases due to uncertainty regarding income stability. Given the long-term financial commitments associated with homeownership, reductions in income confidence can materially suppress transaction volumes.
The rental segment has similarly undergone shifts, having experienced pronounced rent increases in previous years. In 2025, however, rent growth decelerated, with Bank of America data indicating flat year-over-year rents in October—the first such occurrence in over three years. Nevertheless, sustained barriers to homeownership, including high down payments and monthly costs, will likely maintain strong rental demand. Compounding this, constraints in newly constructed apartment supply are expected to support continued rent growth of about 2% to 3% year-over-year into the end of 2026, as projected by Redfin.
Regarding housing policy, President Donald Trump’s administration has recently announced intentions to implement the "most aggressive housing reform plans" in US history during 2026. While comprehensive details remain limited, National Economic Council Director Kevin Hassett indicated a focus on regulatory measures aimed at streamlining approvals and incentivizing states to facilitate homebuilding. Proposals floated in recent months include innovative concepts such as 50-year mortgages and portable mortgages, intended to ease buying pathways.
Statements from White House spokesperson Kush Desai underscore homeownership as a central priority within the administration’s affordability agenda, with further announcements anticipated. However, housing policy analysts, including Jaret Sieberg from TD Cowen, caution that the extent of actionable reforms deployable within 2026 may be limited, tempering expectations on near-term market impacts from federal initiatives.
In summary, while 2026 may herald a phase of increased stability and modest improvement in housing market activity, significant shifts in home prices, borrowing costs, and overall affordability are unlikely without notable acceleration in housing construction and effective policy implementation. Market participants and prospective buyers should anticipate a continuation of the marginal trends observed recently rather than a dramatic market transformation in the immediate future.