Gary Dolch
Phone
512-656-5627
Email
[email protected]
According to Realtor.com's midyear forecast update, U.S. home prices will grow by 1.2% in 2026, down from its original forecast of 2.2%. Home sales are still expected to inch higher this year, but inflation is projected to outpace home price growth, meaning home values will decline in inflation-adjusted terms.
Here are the other key takeaways from its revised projection:
•Mortgage rates remain the biggest obstacle – Realtor.com still expects the 30-year fixed mortgage rate to average 6.3% through the end of 2026. That's down from 6.6% last year but well above the roughly 4% average from 2013 to 2019, continuing to weigh on affordability.
•Home sales will remain subdued – Existing-home sales are projected to reach 4.10 million this year, down slightly from the original 4.13 million forecast but still about 1.0% higher than 2025. Buyers are gradually returning, but borrowing costs continue to limit activity.
•Inventory is growing, but not as fast as hoped – More homeowners are putting their properties on the market, giving buyers more choices. Meanwhile, Realtor.com expects national rents to decline another 1.2% in 2026, making renting a more attractive option in many markets.
•Housing markets are becoming more regional – Price growth and affordability continue to diverge across metros. While coastal markets still dominate the luxury segment, only five major metros have a typical luxury home priced below $1 million, showing that luxury price growth is spreading beyond the traditional coastal markets.
Economic Landscape
Economic resilience helps to offset both new and familiar challenges.
Unemployment Steadies Amid Balanced Labor Supply and Demand
Among the bigger surprises so far in 2026 is the resilience of the U.S. labor market. After a period of slower growth–and in some months net job decline–in late 2025 and early 2026, firms have added payroll jobs in each of the last 4 months ending in June 2026. This has kept the unemployment rate fairly steady just above 4%, lower than we had initially expected for the year. Although AI and tech-related job loss narratives continue to be common, the evidence is stronger for other impacts. For example, we found increased down payments in the Bay Area that coincide with equity gains among AI-sector workers. Additionally, increased demand for skilled laborers for data center construction is positive for those workers, but challenging for builders and anyone looking to hire a contractor to manage home projects.
While the overall hiring and unemployment figures are still pretty solid, average hourly earnings slipped to 3.4% in May. On the one hand, this is among the lower rates of earnings growth seen in the post-pandemic period. On the other hand, this rate of earnings growth still ranks among some of the top pre-pandemic readings. On net, we expect to see household income growth continue in 2026, rising 3.9%, or slightly higher than projected in our initial forecast.
Energy Prices Renew Inflation as the Fed Recommits to Price Stability
Unfortunately, inflation is also going to be higher than initially expected, putting real wage growth at risk. In May, inflation hit a 3-year high of 4.2%, fully erasing the nominal wage gains that workers earned that month and sparking concerns about a price spillover beyond the energy sector. In response, the Fed statement in June, issued after Chair Kevin Warsh’s first meeting at the helm, was very blunt, ending simply, “The Committee will deliver price stability.” Keeping inflation in check is the right move for both the economy and housing markets in the long run, but in the short term, it has raised market expectations for the Fed Funds rate.
Mortgage Rates Remain on the High-end of Their Recent Range
In February, before the start of military strikes on Iran, the market anticipated 1 to 2 additional Fed rate cuts by December. Now, however, the market has priced in 1 to 2 increases, a nearly full percentage point swing stemming from the conflict and its downstream impacts on the price of oil and inflation, as well as the other political and economic uncertainty that it introduced. Despite the variation in expectations for short-term rates, the 10-year yield has hovered in a slightly narrower range than recent years, ranging from 4% to 4.5%. This has helped to keep mortgage rates relatively range-bound between 6% and 6.5% for the year with distinct phases. Before the conflict, mortgage rates had just slipped below 6% for the first time in 3.5 years. After the conflict, we saw a sharp shift in mortgage rates that climbed to 6.5% and continue to remain close to this benchmark, which is not as market-friendly as rates near 6%, but is still an improvement over mortgage rates in 2025.
Homebuilding Navigates Headwinds as Opportunity Varies Regionally
Despite the post-conflict uptick, borrowing costs this spring were lower than in prior recent homebuying seasons, leading to a pickup in home sales activity, particularly among existing-home sales. In contrast, homebuilders, who saw more buyer interest when mortgage rates were higher and mortgage rate buydowns and price cuts were very attractive, have seen new-home sales wane as prices stabilize for listings. As a result, builders are actively managing their project pipelines and pulling back on permit and start activity. The greatest recent slowdowns are in the South and West, regions that typically comprise the bulk of national construction activity and which are more fully recovered from housing supply shortages. Reflecting this, we’ve pulled back on our original expectation for single-family housing starts.
Despite recent headwinds, the national homebuilding deficit is still an estimated 4 million homes, suggesting plenty of opportunity for builders, particularly in the Northeast and Midwest where housing shortages are most acute. Over the last 250 years the federal government has adopted policies that have expanded homeownership by meeting the needs of the time. The 21st Century ROAD to Housing Act, which aims to expand supply by making it easier to build, is the federal government’s response to the housing shortage that we will track in the years ahead.
2026 Housing Trends
Against the backdrop of a resilient economy and new challenges, the first half of 2026 delivered stability more than momentum in the housing market. The housing market is inching forward as sellers reset expectations, price growth cools, and buyers gain more negotiating power.
Home Sales Shake Off a Slow Start
Existing-home sales had a slower start to the year than initially expected, trailing behind year-ago pace in January, February, and March even as mortgage rates briefly dropped below 6% at the end of February. As conflict broke out in the Middle East, mortgage rates shot back up on anticipated inflation as economic uncertainty increased, raising the possibility that consumers would pull back. However, homebuyers and sellers appear to be taking these developments in stride. Existing-home sales steadied in April before climbing more convincingly in May. Year-to-date, existing-home sales are currently just 0.2% ahead of their prior year pace. We expect growth to pick up in the second half of 2026, though by less than we originally forecast. As a result, existing-home sales are expected to grow 1.0% to an annual total of 4.10 million.
Notably, the May existing-home sales data not only showed a pick-up in sales, but also greater participation from first-time homebuyers who were 35% of purchases, up from 30% in the prior year. Combined with a higher than expected homeownership rate of 65.3% in the first quarter, this trend prompted an upward revision in our outlook for homeownership across the full year. Young households are navigating a challenging market where affordability is improving only slowly and a record-high number of 18 to 34-year olds are living at home. At the same time, the data suggest that many of those who are striking out are increasingly choosing homeownership.
Nominal Price Gains for Sellers as Real Declines Improve Affordability for Buyers
Alongside the more sluggish sales picture, home price growth has moderated. Year-to-date home prices are up just less than 1% over the prior year, and our revised forecast reflects slower price growth amid more balanced or buyer-friendly housing market conditions in many areas. As a result of the moderation, data suggest that sellers have shifted their approach to the housing market. Asking prices have come down upfront, so sellers are not cutting prices as often as they did last year. More reasonable expectations from sellers are helping buyers and sellers reach the price agreement needed to close a deal. Although asking price cuts are rarer this year than last year, data show that the sale to list price ratio is not much changed at nearly 97% of the original listing price.
What has improved, even beyond the 1.3% drop anticipated in our original forecast, is the affordability of today’s mortgage payment for the typical home sold. Monthly payments for 2026 homebuyers are now expected to register 1.9% below last year’s payment as our mortgage rate outlook is largely unchanged and our price growth expectations have softened. When combined with higher expectations for income, the share of a paycheck that buyers need to put toward housing payments is even lower. Furthermore, with inflation expected to run at a 3.4% rate for the year, home prices are actually falling in real terms which will reduce housing costs relative to other budget items.
Rents Continue to Fall
Renters are expected to see continued relief from declining rents through the end of 2026, as a relatively robust multifamily construction pipeline adds to rental supply and helps push rents down. With more new units entering the market, vacancy rates are expected to remain roughly in line with the 7.2% long-term average observed between 2013 and 2019 by the end of 2026 —in fact, the rental vacancy rate registered at 7.3% in 2026Q1.
With rents declining for nearly three years and this trend expected to continue, renter mobility is set to rise as more renters seek affordable housing or upgrade to better units. Mid-size inland cities such as Colorado Springs, Austin and Denver will continue to attract young professionals, given their affordability and job opportunities. In addition, rental markets in the Bay Area are drawing renewed attention, as the AI boom fuels job growth and, in turn, rental demand. Meanwhile, long-term renters in expensive markets like NYC may continue to feel trapped in below-market rent-stabilized units — a dynamic that could intensify following the adoption of a rent freeze that was a key pillar in the Mamdani platform.
Looking ahead, whether renters continue to enjoy relief largely depends on the persistence of supply construction in the face of growing rental demand. According to the 2024 ACS, there are about 46.1 million renting households across the U.S., up 0.5 million from 2023 and 2.8 million from 2014—a continued expansion that underpins steady demand for rental housing. And even though a record-high number of 18 to 34 year olds live with their parents, among those aged 25 to 29 we see a declining share living with parents. Since young adults living on their own in this age range are also the cohort most likely to be renting, this is another source of rising rental demand. Additionally, even though the advantage has shrunk, renting a starter home remains a cost-effective option compared with buying in the short term across most markets, yet another factor that is likely to boost rental demand.
In the face of rising rental demand, additional rental supply is vital. While the first quarter was relatively robust, May multi-family housing starts slipped sharply. This is likely more noise than signal, but it is a data point we are watching. Ultimately, if supply construction keeps pace with — or outpaces — this growing demand, rents should continue to soften; if construction slows before demand catches up, the current relief could stall or reverse.