By Aarthi Swaminathan

Everything you wanted to know about real estate in 2026 but were afraid to ask

The housing market has had a rotten three years. Does 2026 have the potential for a turnaround?

The housing market has been slow this year, presenting challenges to both home buyers and sellers. Will they see some relief in 2026?

More sellers could be forced to cut their asking prices and lower their expectations to attract buyers next year, experts said.

But by and large, most buyers in the new year will face the same pressures they’ve already been experiencing, with mortgage rates around 6% and high home prices limiting their ability to buy. That’s pushed the average age of home buyers up to all-time highs. Buyers’ uncertainty about the economy and jobs could also dampen home sales, on top of surging costs for home insurance.

For those reasons, it’s hard to tell whether the housing market will recover in 2026. “Incrementally, it will be an improvement over 2025,” Doug Duncan, former chief economist of Fannie Mae, told MarketWatch. Duncan spent 16 years at the housing-finance giant, leading teams that forecast home sales, mortgage rates and other key housing metrics.

The road ahead is bumpy.

Even though home buyers are creeping back in, as evidenced by a gradual increase in mortgage applications over the last few months, two key questions still loom over the real-estate market. One is how Trump administration policies could affect the housing market, and the other is whether a new Federal Reserve chair will cut interest rates to stimulate the economy.

The defining issue of the 2025 housing market will also shape 2026

Housing was too expensive for most buyers in 2025, and the coming year will bring similar challenges.

“Affordability remains the No. 1 issue,” Bess Freedman, chief executive of Brown Harris Stevens, a real-estate brokerage, told MarketWatch.

To afford a median-priced home – in September, that was $400,000 – with a 30-year mortgage at a rate of 6.4%, a family with a median income of $85,000 would spend 43% of their income on housing. That’s far more than the 30% that’s generally considered affordable, according to the Federal Reserve Bank of Atlanta’s Home Ownership Affordability Monitor.

Aspiring home buyers may also hesitate because they’re growing worried about the economy and about losing their jobs, according to the latest reads on consumer confidence.

The Trump administration has floated various ideas aimed at bringing down housing costs. From pressuring Federal Reserve Chair Jerome Powell to lower mortgage rates – which is actually not something the Fed controls directly – to suggesting the creation of a 50-year mortgage, the administration has said it wants to address the fact that “young people feel priced out of the American Dream of homeownership,” as Vice President J.D. Vance posted on X recently.

Read more: This CEO is leading an army of real estate agents through the most complex housing market in decades

What home buyers and sellers can expect in 2026

Will mortgage rates go below 6% in 2026?

Probably not. Most forecasts have the average rate on a 30-year mortgage staying at around 6% next year.

As of Dec. 1, the 30-year mortgage rate averaged 6.31%, up 9 basis points from the previous week, according to Mortgage News Daily. The 30-year rate has been gradually trending down this year from a peak of 7% in January, when President Donald Trump returned to the White House.

Real-estate platform Realtor.com expects the 30-year mortgage rate to average 6.3% over the course of 2026. Housing-finance giant Fannie Mae expects the 30-year rate to average around 6% through next year but possibly dip to 5.9% in the last quarter of 2026. The National Association of Realtors expects rates to average “around 6%.”

For the 30-year rate to drop below 6%, one of two scenarios needs to take place, economists told MarketWatch.

Either inflation needs to come down significantly to meet the Federal Reserve’s goal of 2% or the economy needs to experience a shock that triggers job losses and, in turn, rate cuts by the Fed.

Neither of those two scenarios look likely, Orphe Divounguy, a senior economist at real-estate platform Zillow (Z), told MarketWatch.

Duncan, the former Fannie Mae (FNMA) chief economist, added that 6% rates aren’t necessarily unusual when considering average mortgage rates in past years.

“We’re still in a time period where a 6% mortgage rate just seems very difficult,” he said. “That’s actually the long-term average of the 30-year mortgage. … It’s not unusual.”

‘We’re still in a time period where a 6% mortgage rate just seems very difficult. [But] that’s actually the long-term average of the 30-year mortgage rate.’Doug Duncan, former Fannie Mae chief economist

Read more: Mortgage rates fall sharply on expectations of a Fed rate cut. Will they keep on dropping from here?

Will home prices crash in 2026?

Probably not. Most forecasts are for prices to grow a lot more slowly, but not to fall, during 2026. But a lot depends on which part of the country the home is in.

The median price of an existing home as of October was $415,200, according to the NAR. The price of a newly built home in August – the latest month for which data was available due to the government shutdown – was $413,500.

Nationally, Fannie Mae expects home-price growth to slow from a 4.4% annual gain in 2024 and 2.5% rate in 2025 to a 1.3% pace in 2026. Realtor.com expects home prices to grow 2.2% next year. Zillow expects home values to increase 1.2% between November 2025 and November 2026.

Regional differences are stark. Home prices have been falling in parts of the Sun Belt such as Florida and Texas, where prices surged during the pandemic.

Falling prices are a boon for buyers but a bane for homeowners. Some people who bought homes recently are finding that they owe more on their mortgage than their home is worth, known as being underwater on their loan. The number of homeowners who are underwater on their loans recently hit a three-year high of nearly 900,000.

On the flip side, home prices will continue to grow strongly in parts of the Midwest and Northeast, which remain inventory-starved.

Realtor.com expects home prices to rise 5.2% in 2026 in the Northeast and 4.1% in the Midwest, compared with much smaller increases of 1.7% in the South and 0.2% in the West.

Read more: Nearly 900,000 new homeowners are underwater on their mortgages, signaling a troubling shift in the housing market

Will more homeowners give up their low mortgage rates in 2026?

It’s likely. As time passes, more homeowners will be willing to let go of their ultralow mortgage rates and put their homes up for sale, creating more available inventory.

The lock-in effect – which refers to homeowners not wanting to move because they don’t want to take on a much higher mortgage rate than their existing one – constrained housing supply and drove up home prices over the last few years as buyers converged on a smaller pool of properties in the aftermath of the pandemic.

But over time, the share of locked-in homeowners has shrunk. As of the second quarter of 2025, about 80% of homeowners had a mortgage rate below 6% – down from a high of about 92% in 2022, a Redfin (RKT) analysis found. About 70% had a rate below 5%, down from a record of over 85% in 2022. People can expect that share to shrink over the course of the year, a Realtor.com analysis said.

The lock-in effect has “faded somewhat already,” Divounguy said, as evidenced by more listings hitting the market. In 2025, the inventory of existing homes for sale grew 15% compared with the previous year, Realtor.com data showed.

In 2026, Realtor.com expects the inventory of existing homes to grow about 9%. Bright MLS expects an increase of nearly 11% by the end of 2026.

Read more: Home sellers face a tough choice right now: cut their asking price, or roll the dice on a better deal later

Will there be more deals on new homes in 2026?

It’s likely. With more inventory on the market, builders may feel pressure to sell quickly.

In 2025, many builders cut prices on new homes and offered steep discounts to lure buyers. Some of these deals included offering mortgage rates as low as 1.99% in the first year to get buyers in the door.

In November, 41% of builders cut prices on new homes, according to the National Association of Home Builders.

The fact that builders are cutting prices shows how much they want to sell those homes. “It’s expensive to carry inventory, and they are loath to cut prices in a development that’s partially sold, because the earlier buyers get pretty upset if the [subsequent] buyers get lower prices,” Duncan said.

On the existing-home side, buyers can expect more price cuts as well, Divounguy said, as sellers adjust their expectations.

More sellers were cutting prices in October to boost sales, Zillow data found, with multiple reductions becoming more common. Across the country, about 27% of for-sale listings had a price cut in October, according to the data, with the total size of the cut being $25,000.

Read more: From price cuts to bidding wars, America’s home buyers are in two wildly different worlds

(Realtor.com is operated by News Corp subsidiary Move Inc.; MarketWatch publisher Dow Jones is also a subsidiary of News Corp.)

Do you have questions about real estate hat you would like to see covered in MarketWatch? We would like to hear from readers. You can write to us at readerstories@marketwatch.com. A reporter may be in touch to learn more. MarketWatch will not attribute your answers to you by name without your permission.

-Aarthi Swaminathan

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

  (END) Dow Jones Newswires

  12-03-25 0600ET
Copyright (c) 2025 Dow Jones & Company, Inc.