The 2025 housing market unfolded almost exactly as First American projected—slow, steady, and marked by small steps forward rather than a full recovery. Mortgage rates eased into the high-5% to low-6% range, affordability improved slightly as home prices cooled, and inventory rose gradually throughout the year. Even so, the market remained far from normal, with high prices and the ongoing lock-in effect keeping many homeowners from listing their properties. As 2026 approaches, First American expects the same forces that shaped 2025—tight supply in some regions, improving affordability, and strong life-driven demand—to continue playing a major role. The forecast highlights six key drivers for 2026: expanding supply, affordability trends, demographic pressure, regional differences, new-home strength, and pockets of financial stress.
Affordability is expected to improve only slowly. Mortgage rates are projected to stay in the low-6% range, and while a dip below that is possible, experts say rates alone won’t jumpstart the market. Instead, the bigger boost will likely come from rising inventory and stable home price growth. Home prices saw their slowest appreciation since 2012, and incomes grew faster than prices in many markets—a trend that, if it continues, will help more buyers enter the market. Another powerful force is pent-up demand. Between 2022 and 2025, roughly 4 million fewer home sales occurred each year compared to the pre-pandemic norm, meaning millions of households delayed buying or selling. With more than 50 million Americans now in their 30s, life events—marriage, children, relocation, downsizing, and caregiving—will continue to push people into the market even if rates remain elevated.
However, the market will vary dramatically by region. The Northeast and Midwest still face very tight inventory, and these areas are likely to see continued price stability and competitive conditions in 2026. Meanwhile, the South and West have far more homes for sale, including a surge of new construction. Metros like Austin and Tampa, which saw rapid price spikes during the pandemic boom, now have more supply than buyers, forcing sellers and builders to cut prices or offer incentives. This creates what experts call a “two-speed market” for 2026—softening conditions in the South and West, and ongoing tightness in the Northeast and Midwest. Rising insurance costs in coastal states may widen that divide further.
Foreclosure activity has risen but remains manageable. Analysts don’t expect a wave of distress, as most homeowners have strong equity and steady jobs. The two biggest triggers for foreclosure crises—large-scale job losses and widespread negative equity—are not present on a national scale. Stress is concentrated among households with high insurance expenses, thinner financial cushions, or mortgages from the peak-price years.
Listing activity, though still far below normal, is steadily increasing. More sellers in 2025 accepted the reality that rates may not drop back to pandemic levels, and many decided to move anyway for family or career reasons. Inventory turnover improved from 1.4% to nearly 1.5% during the year—still well under the historic 2.5%, but moving in the right direction. Builders remain cautiously active, offering aggressive incentives to attract buyers. Despite softer demand, new construction will continue to play a key role in 2026, especially as many existing homeowners remain locked into 3–4% mortgages and hesitate to list.
Overall, First American expects 2026 to be another year of gradual progress. The market won’t fully reset, but more supply, stable prices, rising incomes, and steady life-driven demand will help move buyers and sellers off the sidelines. The housing landscape will still be uneven, but it will take one more step toward balance, setting the stage for a healthier market in the years ahead.
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