Executive Summary
The Trajectory So Far
Assessing Risk and Value
Expert Predictions and Forecasts
The US housing market is showing signs of a slow thaw but remains far from robust, with high mortgage rates and economic uncertainty continuing to deter both buyers and sellers. Despite recent interest rate cuts by the Federal Reserve and a slight uptick in builder confidence, major homebuilders like D.R. Horton anticipate cooling sales to persist into next year. Experts suggest that a significant rebound hinges on consistent job growth and mortgage rates low enough to incentivize existing homeowners to move.
Builder Confidence and Economic Headwinds
D.R. Horton, the nation’s largest homebuilder, recently reported an expected continuation of cooling housing sales into the next year, attributing this to elevated mortgage rates and increasing economic uncertainty among potential buyers. The company noted a 3% decline in the average sales price for single-family homes year-over-year in the three months ending September, reaching $365,600. To stimulate sales, D.R. Horton has leaned into incentives, including mortgage rate buydowns that trimmed 110 basis points from its gross profit margin.
Builder confidence, as measured by the National Association of Home Builders/Wells Fargo Housing Market Index, reached 37 in October, its highest since April. However, this figure remains significantly below the level that would indicate widespread optimism about the short-term market outlook. Federal Reserve Chairman Jerome Powell acknowledged the weakness in the housing sector following the central bank’s recent quarter-point interest rate cut, citing growing concerns about employment.
Impact of Job Market and Tariffs
The US unemployment rate rose to 4.3% in August, a key factor impacting new household formations and consumer confidence. D.R. Horton CEO Paul Romanowski emphasized the need for consistent, sustainable job growth to drive a rebound in the housing market. Economists suggest that the two rate cuts implemented this year may not be enough to spark a significant housing market recovery.
Ken Simonson, Chief Economist for the Associated General Contractors of America, remarked that single-family home sales are “climbing out of the basement, but they haven’t reached the ground floor yet.” He also pointed to steep US government tariffs on various construction materials as factors pushing up costs and complicating home planning and pricing.
Glimmers of Hope and Regional Shifts
However, glimmers of hope are emerging, with the average 30-year fixed mortgage rate recently falling to a range of 6.2% to 6.3% from 6.6% earlier in the year. While this reduction is encouraging, Simonson believes it is “not enough of a cut to bring forth a surge of homebuyers.” Anirban Basu, CEO of Sage Policy Group, predicts that 2026 could be the best year to buy a home in several years, citing a weaker economy, increasingly impatient sellers, and slowly receding mortgage rates.
The supply of existing homes is also improving, now approaching pre-pandemic levels, with states like Tennessee, Texas, Colorado, and Florida experiencing some of the largest increases in listings. Nadia Evangelou, senior economist for the National Association of Realtors, noted that Tennessee alone has about 35% more homes for sale than in 2019. This increase in supply is crucial for the market, though many homes remain priced above what most buyers can afford.
Demand is also shifting regionally, with states in the South such as Florida, North Carolina, South Carolina, Alabama, and Texas attracting a steady stream of movers due to better affordability and growing employment opportunities. Midwestern cities like Des Moines, Omaha, and Kansas City are also seeing increased demand, with Kansas City experiencing a more than 50% increase in net domestic migration last year.
Overcoming Market Stagnation
A significant challenge remains the reluctance of homeowners who secured mortgage rates below 3% during previous periods of low interest rates to sell their current homes. However, Evangelou observed “some easing,” with the inventory of existing homes at its best level in five years, suggesting more homeowners are finally listing. This trend, combined with expectations for mortgage rates to ease further and stabilize near 6%, points to a gradual improvement next year.
Indeed, September saw a positive shift, with the number of US homes sold increasing by 7.3% to approximately 442,400, according to real estate company Redfin. This uptick, alongside falling rates and increased inventory, provides some optimism for a market that has been characterized by stagnation.
