Homebuyers are beginning to see some relief as mortgage rates decline and home price growth slows, although affordability remains a major challenge. Still, the improving conditions suggest that momentum could carry into next year.
While 2025 has largely been a year of stabilisation for the housing market, 2026 is expected to be more favourable for buyers, according to Joel Berner, senior economist at Realtor.com.
Berner said lower mortgage rates and easing price growth partly drive the improving outlook. The average 30-year fixed-rate mortgage currently stands at 6.18%, according to Freddie Mac, down from around 7% earlier this year. Although rates remain well above pandemic-era lows, Berner noted an increase in buyer activity.
He added that while mortgage rates are unlikely to fall back to the 3% or 4% range next year, a drop below 6% is “definitely in the realm of possibility.” Freddie Mac data shows buyers have not seen rates below 6% since September 2022.
Despite the downward movement in rates, affordability remains a significant hurdle, particularly for first-time buyers. Rising home prices over recent years have also pushed the median age of first-time buyers higher.
A November report from the National Association of Realtors found the median age has reached 40, the highest level on record. Market conditions remain challenging, even though the index has eased from recent peaks.
At the same time, sales activity is increasing, and home price growth is slowing. The S&P Cotality Case-Shiller U.S. National Home Price Index reported a 1.4% annual increase in October, closely matching September’s figures and signalling stagnation in price growth.
Nicholas Godec, head of fixed income tradables and commodities at S&P Dow Jones Indices, said that high borrowing costs—the highest seen in decades—have squeezed affordability enough to dampen demand and slow price momentum across much of the country. However, broader economic uncertainty could still hold buyers back. A fragile job market and persistent inflation remain key concerns.
Berner said economic uncertainty is the primary factor discouraging buyers, noting that confidence in personal finances plays a major role in the decision to purchase a home. He added that continued weakness in labour market data could have a greater impact than improving housing conditions, though he does not necessarily expect that scenario.
Despite these concerns, buyer activity is already showing signs of improvement. Pending home sales rose 3.3% in November compared to October and were up 2.6% year over year, according to the National Association of Realtors. The pending home sales index tracks signed contracts and serves as a measure of buyer interest and market movement.
NAR chief economist Lawrence Yun said momentum among homebuyers is building, describing the data as the strongest performance of the year after seasonal adjustments and the best showing since February 2023. In addition, more than 20% of Realtors surveyed by NAR in December said they expect buyer traffic to increase year over year over the next three months.
While confidence among Realtors is improving, sentiment among homebuilders remains subdued, despite a slight increase in December. According to the latest NAHB/Wells Fargo Housing Market Index, some builders have been forced to lower prices and offer incentives to attract buyers.
Berner said builders are facing reduced demand and rising inventories, making them cautious in an environment marked by high labour costs and tariffs on materials. Although he expects a modest improvement in 2026, he said he would not be surprised if construction activity remains limited. Meanwhile, JPMorgan analysts estimate that 1.3 million new homes will be needed in 2026, according to a note released earlier in December.
