Executive Summary
- The 2026 housing market is projected to see slow, steady gains driven by rising incomes and moderating home prices, not significant mortgage rate cuts.
- Strong underlying demand from millennials and other demographic groups experiencing major life events will continue to fuel sales activity.
- Housing inventory levels will remain a key factor, with significant regional differences between scarce markets in the Northeast and Midwest versus more supplied markets in the South and West.
- A foreclosure wave is considered unlikely due to a stable labor market and high levels of homeowner equity.
The U.S. housing market is expected to experience slow but steady gains in 2026, driven primarily by improving affordability from moderating home price growth and rising incomes rather than significant drops in mortgage rates. According to a new forecast from First American, this gradual recovery will be marked by persistent regional differences in inventory and sustained demand from key demographic groups.
Affordability and Mortgage Rates
First American’s deputy chief economist, Odeta Kushi, projects that mortgage rates will likely hold in the low 6% range, offering some relief but not enough to single-handedly revive the market. “The heavy lifting comes from moderate home-price growth as inventory improves, paired with continued income gains,” Kushi stated. She emphasized that affordability improvements will be driven more by “prices cooling and paychecks rising, rather than because financing suddenly gets cheap.” The report notes that First American’s house price index is already showing appreciation at its slowest pace since 2012, a trend expected to continue.
Demographics to Drive Demand
Despite higher borrowing costs, underlying demand remains strong. Kushi highlighted a significant sales deficit, noting that the market is roughly 4 million sales short of the pre-pandemic five-year average. Demographics will play a crucial role, with nearly 52 million Americans in their thirties. “That underscores how large the pool of potential first-time buyers is as life stages line up with housing needs,” Kushi said. Life events such as marriages, growing families, and job changes are expected to continue pushing buyers and sellers into the market.
Inventory and Regional Divides
While national inventory has shown signs of recovery, with active listings up 13% year-over-year as of late 2025, conditions vary significantly by region. “The Midwest and Northeast tend to be scarcest on both resale and new-home inventory,” Kushi explained, which supports stronger price retention in those areas. In contrast, many metropolitan areas in the South and West have seen supply levels increase, with 22 major markets now exceeding their 2018–2019 inventory averages, providing more options for buyers.
Market Stability and New Construction
Kushi dismissed concerns of a widespread foreclosure wave, citing two key protective factors: a labor market that has cooled but not cracked and the substantial equity cushion held by most homeowners. In this environment, new construction is poised to maintain its advantage. “New-home sales are likely to hold an edge over the existing market in 2026,” she said, noting that builders can offer incentives like rate buydowns and price adjustments to attract buyers.
While 2026 is unlikely to see a dramatic housing rebound, the forecast points toward continued, incremental progress. As Kushi concluded, “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.”
