Next year may mark a turning point for the US housing market.

After several years in a deep freeze, with high borrowing costs and soaring prices locking many Americans out of homeownership, economists say conditions may begin to shift in 2026.

But next year, many economists are optimistic about the housing market. Many anticipate that rising incomes will start to outpace home prices, making homes feel more affordable for many Americans.

Redfin has dubbed 2026 “The Great Housing Reset,” while Compass has described it as the start of a “new era.”

And after years of historically low sales volumes, even a small increase in activity would mark a turning point for the housing market. The shift would come as the Trump administration has signalled it intends to prioritize housing affordability in 2026, though details of those plans remain limited.

The last few years, the housing market has felt stuck, said Mike Simonsen, the chief economist at Compass. Fewer homes changed hands, but home prices kept relentlessly climbing.

“In the next era, we’ll have sufficient inventory on the market across the country, allowing sales to increase,” he said, predicting that the number of home sales would finally tick higher in 2026.

That may happen for a number of reasons – but government reform probably isn’t one of them.

Will home prices fall?

Home prices have exploded since the pandemic, as demand for homes outstripped supply, pricing many Americans out. Between the start of 2020 and the third quarter of 2025, home prices climbed nearly 55% nationwide, according to a recent report from the National Association of Homebuilders.

But as homeowners adjust to rates above 6%, more may decide it’s time to sell in 2026, adding inventory to the market and easing price pressure, said Simonsen.

This year, there were glimmers of affordability, with some states like Florida, Texas, and California seeing average home prices decline in 2025 from their peaks.

But don’t expect a sharp nationwide drop in home prices in 2026, Simonsen said. Prices are more likely to hover near current levels.

“We’re forecasting a half a percent increase in home prices next year, which is essentially flat,” he said.

Even so, many buyers may still feel priced out in 2026. The best way to make homes more affordable long term would be to build more homes, Simonsen noted.

But when it comes to homebuilding, Simonsen said “we are behind.”

What will happen to mortgage rates?

Mortgage rates have trended lower in the second half of this year. Last week, the average 30-year fixed-rate mortgage was 6.18%, significantly lower than at the start of 2025, when rates were approaching 7%.

Simonsen expects mortgage rates to stay above 6% next year, but that could change. A weakening labour market or falling inflation might prompt the Federal Reserve to cut rates more than expected. While mortgage rates don’t follow the Fed directly, they track the 10-year Treasury yield, which reacts to the Fed’s moves.

Consumer confidence is critical to the housing market, said Jason Waugh, president of Coldwell Banker Affiliates. If the labour market softens further and buyers feel less secure in their jobs, they may be less willing to buy a home, weighing on sales.

“For the majority of folks, (buying a house) is a 15-year or a 30-year commitment,” he said. “If you’re not confident in your income stream or your income potential, you may pause and not take on larger commitments.”

What about rent prices?

After an explosion in rent prices in many cities a few years ago, renters got a little relief in 2025 as rent growth cooled, according to Bank of America.

Rents were flat year-over-year in October for the first time in three and a half years, according to the bank’s internal payments data.

But that relief may not last.

With many Americans still locked out of homeownership by high down payments and expensive monthly mortgage payments, Redfin estimates rental demand will stay elevated, even as fewer newly constructed apartments hit the market.

Rents may rise by about 2% to 3% year over year by the end of 2026, according to Redfin.

What is the Trump administration proposing?

Earlier this month, President Donald Trump teased plans to pursue the “most aggressive housing reform plans” in US history next year.

While the White House has been mum on details so far, National Economic Council Director Kevin Hassett suggested plans focused on housing regulations during a television appearance last week.

“There are a lot of things that we can do with regulations to try to help get stuff approved quicker,” he said on Fox Business. “And we can also do things like reward states that make it easier for people to build a new home.”

“The American people can count on more to come – stay tuned!” Desai added.

Over the last few months, the Trump administration floated several ideas to make it easier to buy homes, including a 50-year mortgage plan and portable mortgages.

“We believe there are limits on what the President can do in 2026 to boost housing,” Jaret Sieberg, a housing policy analyst at TD Cowen wrote to clients in a note earlier this month. (CNN)

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