housing market predictions for 2026: when will home prices drop?
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By Angelica Leicht | Published on January 29, 2026
Slowing home price growth, rising inventory in some regions and modestly lower mortgage rates are giving buyers slightly more options and purchasing power. Despite these advantages, many potential buyers are still choosing to wait.
Looking ahead to 2026, housing experts generally expect gradual price growth and relatively stable mortgage rates. Markets with rising supply and strong local economies are likely to offer the most opportunities for buyers early next year.
Fed Holds Rates Steady at the Start of the Year
The Federal Open Market Committee (FOMC) voted at its January 2026 meeting to hold rates steady at a target range of 3.5% to 3.75%. Federal Reserve Chair Jerome Powell noted that there was broad support for the decision while stating that the tariff impacts have already moved through the economy in large part. Powell also noted in his comments that trade policy is driving inflation to remain above the 2% goal, and if lower inflation or job market improvements occur, it could help to justify future rate changes.
The federal funds rate, which is what banks charge each other for overnight loans, indirectly impacts mortgage rates.
The Fed began raising its key interest rate in March 2022 to curb runaway inflation, holding rates at 5.25% to 5.5% before conducting three cuts in late 2024. By that point, mortgage rates had soared to their highest level in decades while home prices hit record peaks, leaving many buyers priced out and waiting on the sidelines.
The FOMC will hold its next meeting on March 17 and 18, 2026.
Housing Market Forecast 2026
National home price growth has slowed considerably. The U.S. national home price index recorded a 1.4% annual gain as of December 2025, one of the slowest growth rates in recent years.
Regional trends vary: Sunbelt markets like Miami and Tampa, Florida, and Phoenix have experienced price declines, while major urban centers such as Chicago, Cleveland and New York City show modest gains.
Forward-looking into 2026, analysts project 1% to 2% price growth nationally, with stronger appreciation in select urban hubs and slower or flat growth in areas that have already cooled.
Will the Housing Market Crash in 2026?
Although prices in many markets remain high, a sudden housing market crash occurring in 2026 appears unlikely. Housing inventory has improved, which provides stability, but remains below pre-Covid-19 pandemic norms.
Homeowners are also generally financially secure, many with substantial equity, and a growing number of households are becoming mortgage free. These conditions make a widespread housing collapse unlikely in 2026, though some markets could experience moderate corrections.
Housing stock supply has risen substantially compared to last year, yet overall inventory is still well below pre-pandemic levels.
“[T]he record low supply of houses on the market protects against a market crash,” says Tom Hutchens, executive vice president of production at Angel Oak Mortgage Solutions, a nonqualified mortgage lender.
When Will the Housing Market Recover?
Two key conditions would support a more meaningful recovery:
Housing Inventory Needs To Increase
A substantial rise in homes for sale is needed to ease upward pressure on prices. Markets that see inventory improvements in 2026 are likely to experience more balanced conditions and greater buyer opportunities.
Mortgage Rates Need To Fall
Additionally, mortgage rates need to decline to see a meaningful increase in housing market activity. As of February 26, 2026, the average 30-year fixed mortgage rate dropped to 5.98%—the first time it’s dipped under 6% since early September 2022, according to Freddie Mac data. Even this modest dip could encourage more buyers and moderate prices.
How Do Today’s Monthly Payments and Long-Term Interest Costs Compare to Last Year?
The Forbes Advisor mortgage calculator makes it easy for new homeowners to estimate what they’ll pay monthly and how much interest they’ll shell out in the long run.
For example, in January 2026, a typical home cost $357,445, according to Zillow data. Buyers who put down 20% on a house and financed at a 6.10% mortgage rate—the average 30-year fixed mortgage rate the last week of January—have a monthly principal and interest payment of $1,732.
In contrast, homeowners who bought a home at the same time in 2025, at the typical price of around $356,859 when the mortgage rate was 6.95%, are paying $1,889 a month.
In this scenario, homeowners who bought an average-priced home in January 2026 are paying $157 less each month and saving $56,953 in mortgage interest over the life of the loan compared to buyers who purchased homes in January 2025.
Residential Real Estate Stats: Existing, New and Pending Home Sales
Here’s a look at what’s happening in the housing market—and where things may be headed.
Existing-Home Sales
Existing-home sales, which include completed transactions of previously occupied single-family homes, townhomes, condominiums and co-ops, fell by 8.4% in January 2026—the steepest drop in almost four years. These homes accounted for 3.91 million in sales, according to data from the National Association of Realtors (NAR), with a median sales price of $396,800—down 4.4% year-over-year—and 3.7 months of inventory.
“The below-normal temperatures and above-normal precipitation this January make it harder than usual to assess the underlying driver of the decrease and determine if this month’s numbers are an aberration,” NAR Chief Economist Lawrence Yun in a press release. Additionally, while affordability has improved, the housing supply hasn’t kept up.
New Home Sales
Sales of newly built homes also saw a dip.
The latest U.S. Census Bureau and U.S. Department of Housing and Urban Development (HUD) data revealed that seasonally adjusted new home sales dropped by 1.7% from November to December 2025. This was a 3.8% increase compared to the same time last year.
Sales rose month over month in the Midwest by 31.7% and the West by 9.0%, while they decreased 37.3% in the Northeast and 6.7% in the South. Year-over-year sales saw increases in the Midwest by 30.1%, Northeast by 12.1% and West by 1.8%, while the South dropped by 1.1%.
Meanwhile, the median new home sales price rose 4.2% from November to December, though it fell 2.0% from a year ago, according to the data.
At the same time, new home inventory dropped to an estimated 7.6-month supply of 472,000. This is 2.7% lower than the November 2025 estimate and 3.5% lower than the December 2024 estimate.
Pending Home Sales
Pending home sales also saw a slight decrease, falling 0.8% from December 2025 to January 2026, according to NAR’s Pending Homes Sales Index. Month-over-month pending home sales increased in the Midwest and West and declined in the Northeast and South.
A pending home sale marks the point in the purchase transaction when the buyer and seller agree on price and terms and is considered a leading indicator of a closed existing home sale within the next one to two months.
“Improving affordability conditions have yet to induce more buying activity,” Yun said. “With mortgage rates nearing 6%, an additional 5.5 million households that could not qualify for a mortgage one year ago would qualify at today’s lower rates.”
Though most of these households likely won’t act right away, Yun expects approximately 10% to enter the housing market.
“Unless housing supply increases, these additional potential buyers becoming active in the market could simply push up home prices,” Yun added. “This will put increasing pressure on affordability, which is why it is critical to increase supply by building more homes.”
Experts expect pending sales in the coming months to follow similar patterns: somewhat slow, regionally varied and highly sensitive to mortgage rates.
Housing Inventory Forecast: When Will There Be Sufficient Supply To Reduce Prices?
Even with the dip in inventory from November to December 2025, the supply of homes is still much higher compared to the record lows of early 2022. With affordability also continuing to improve, previously sidelined buyers may find themselves with more options if they know where to look.
The overall market still slightly favors sellers, as supply remains near the lower end of what’s considered a balanced market. However, inventory levels vary widely by region. Markets like Austin and San Antonio, Texas, and Tampa, Florida, where prices surged during the pandemic, are seeing increased supply and slowing price growth.
On the flip side, areas in the Midwest and parts of the Northeast—such as Buffalo and Rochester, New York, Cleveland and Pittsburgh—that didn’t experience skyrocketing price increases and a surge in newly built homes have lower inventory and face increased competition among buyers.
Given the pent-up demand for homes, a decline in mortgage rates—especially a sharp one—could quickly shrink housing supply. And speaking of home prices, here’s what the latest home values look like around the country.
Should You Wait To Buy a Home? Experts Weigh In
Buying a house—in any market—is a highly personal decision. The best timing for your purchase will largely depend on your specific situation.
However, if you’re trying to predict whether the housing market and affordability will be better in 2026, experts say this is probably not the best home-buying strategy.
“The housing market—like so many other markets—is almost impossible to time,” says Orphe Divounguy, senior macroeconomist at Zillow Home Loans. “The best time for prospective buyers is when they find a home that they like, that meets their family’s current and foreseeable needs, and that they can afford.”
Keith Gumbinger, vice president at online mortgage company HSH.com, agrees, noting that it’s hard to tell would-be homeowners to wait for better conditions.
“More often, it seems the case that home prices generally keep rising, so the goalposts for amassing a down payment keep moving, and there’s no guarantee that tomorrow’s conditions will be all that much better in the aggregate than today’s,” he says.
Divounguy says “getting on the housing ladder” is worthwhile to begin building equity and net worth.
Pro Tips for Buyers and Sellers
Here are some expert tips to increase your chances for an optimal outcome in this tight housing market.
Pro Tips for Buying in Today’s Real Estate Market
Hannah Jones, a senior economic research analyst at Realtor.com, offers this expert advice to aspiring buyers:
Know your budget. Instead of focusing on price, figure out how much you can afford as a monthly payment. Your monthly housing payment is influenced by the price of the home, your down payment, mortgage rate, loan term, home insurance and property taxes.
Be flexible about home size and location. Perhaps your budget is sufficient for a small home in your perfect neighborhood or a larger, newer home further out. Understanding your priorities and having some flexibility can help you move quickly when a suitable home enters the market.
Keep an eye on the market where you hope to buy. Determine the area’s available inventory and price levels. Also, pay attention to how quickly homes sell. Not only will you be tuned in when something great hits the market, but you can also feel more confident moving forward with purchasing a well-priced home. A real estate agent can help with this.
Don’t be discouraged. Purchasing a home is one of the largest financial decisions you’ll ever make. Approaching the market confidently, armed with good information and grounded expectations, will take you far. Don’t let the hustle of the market convince you to buy something that’s not in your budget or not right for your lifestyle.
Pro Tips for Selling in Today’s Real Estate Market
Gary Ashton, founder of The Ashton Real Estate Group of RE/MAX Advantage, has this expert advice for sellers:
Research comparable home prices in your area. Sellers need to have the most up-to-date pricing intel on comparable homes selling in their market. Know the market competition and price the home competitively. In addition, understand that in some price points it’s a buyer’s market—you’ll need to be prepared to make some concessions.
Make sure your home is in top shape. Homes need to be in great condition to compete and create a strong “online curb appeal.” Well-maintained homes and attractive front yards are major features that buyers look for.
Work with a local real estate agent. A real estate agent or team with a strong local marketing presence and access to major real estate portals can offer significant value and help you land a great deal.
Don’t put off issues that require attention. Prepare the home by making any repairs or improvements. Removing any objections that buyers may see helps focus the buyer on the positive attributes of the home.