Realtor.com predicts gradual housing market recovery in 2026

Realtor.com released its 2026 Housing Forecast, projecting a cautious stabilization in the housing market after several years of affordability challenges, limited supply and tepid activity.

Buyer conditions are expected to improve gradually as mortgage rates ease, incomes rise and more homes come onto the market.

Still, the recovery is expected to remain slow, with existing-home sales staying well below normal levels and broader political and economic uncertainty keeping the outlook fragile.

Realtor.com forecasts the average 30-year mortgage rate will hover near 6.3% in 2026 — slightly below the 2025 average of 6.6%.

Chief Economist Danielle Hale told HousingWire that inflation and tariff-related cost pressures play a key role in keeping rates from dropping further.

“One of the reasons we expect mortgage rates to kind of hover in the 6.3% range and not move lower is because we do think inflation is going to tick up a little bit as tariff prices pass through to the overall price level,” she said. “So we think that’s going to keep mortgage rates from falling too much in 2026. If that pass-through were even greater than we expected, we could potentially see mortgage rates rise even higher.”

She added that while higher-than-expected inflation or faster economic growth could push rates up, weaker growth could pull them down.

“If the economy were to slow more than we’re expecting, which is possible, then we could see mortgage rates and other interest rates that are lower than what we’re currently projecting,” Hale said. “I would say our expectation is that we’re going to see modest growth, slowing growth, but growth nonetheless. So, there are scenarios where mortgage rates could end up lower than forecast.”

Home prices

Paired with steady income growth, expected rate relief could bring the typical mortgage payment share of income down to 29.3% — falling below the 30% affordability threshold for the first time since 2022.

Home prices are projected to rise 2.2% in 2026, following a 2.0% increase in 2025. But those nominal gains are not expected to keep pace with inflation, meaning real home prices will fall for the second year in a row.

“The reason we’re seeing real home prices decline is that home price growth is slightly below what I would consider a normal range, and inflation is higher than typical,” Hale said. “We’re expecting growth of just over 2% for next year, and inflation above 3%, which is higher than where the Fed would like it to be. So higher inflation and somewhat lower-than-typical home price growth means real home prices decline, but it is a more gradual adjustment that gives everyone time to adapt.”

Inventory and affordability

Active listings are expected to grow 8.9% in 2026, the third consecutive year of expansion.

Though the pace is slowing as the market approaches more typical levels, supply is still expected to finish the year about 12% below pre-2020 norms.

Hale emphasized that boosting supply remains a structural and policy challenge.

“A lot of the work to improve homebuilding has to be done at a local level because the local regulations that make it more challenging or costly to build really add up,” she said. “But there are things the federal government can do, such as using grants or review processes to encourage best practices. Recalibrating tariffs matters too — because tariffs on building materials raise construction costs and can cause builders to pull back.”

With supply growing faster than sales, the market is expected to maintain a balanced 4.6 months of inventory — slowly inching toward the six-month level traditionally associated with a buyer’s market.

Moderating rates, slower price growth and rising incomes are expected to deliver the most meaningful affordability improvement since 2022.

The typical monthly payment for a median-priced home is projected to fall 1.3% year-over-year.

Rents are expected to continue declining modestly, ending 2026 down 1%.

Lock-in effect persists

Existing-home sales are forecast to rise 1.7% in 2026 to 4.13 million — still among the slowest levels in decades.

Four in five mortgage-holding homeowners have a rate below 6%, leaving many reluctant to move unless prompted by major life events.

Hale explained why this lock-in effect will continue shaping the market — and why ultra-low pandemic rates are unlikely to return.

“Those rates we saw in the COVID pandemic were historically abnormal, so we’re not likely to see them again without some sort of catastrophic event,” she said. “The lock-in effect is something we’re still going to be talking about for years, because resetting a low-rate mortgage can be very expensive.

“But every bit lower that mortgage rates move improves the calculation for someone, and over time equity gains give people more options, so the market will gradually recover.”