The housing market in the United States has been fairly stable, although with lower appreciation than homeowners would prefer and fewer transactions than real estate professionals would like. The current economic forecast supports continuation of this activity level. The interest rate drop that many would like to see is unlikely to arrive, at least in a size large enough to make a difference.
This article covers national trends and the forecast. Local areas will vary, but for any region, the national economy will have a greater impact than local conditions. Look at economic growth and interest rates first, then whether people are moving into or away from the locality of interest.
Housing Market Review
Prices for existing homes have risen by just over two percent in the past 12 months. This rate of appreciation is unusually low, though not without precedent. The national average appreciation over the past 50 years has been about 1.5 percentage points above inflation. Our current inflation is over three percent, so “normal” price appreciation would be about five percent. Homeowners enjoyed stronger appreciation right after the pandemic, and those gains make continued increases difficult. When prices get too far away from trend, further gains become harder to attain.
The number of home transactions has remained in a very narrow range after adjustment for typical seasonal variation. The volume has run in an unusually narrow range for more than a year.
The small number of existing homes on the market limits transaction volume but has not boosted prices. Buyers feel that prices have risen too much relative to wages, and too few homeowners are putting their houses up for sale because they’d have to give up their low mortgage rates.
Two possible paths could lead to much greater transaction volume. One would be a surge of employment and income across a wide swath of the population. That seems unlikely. The other possible path to increasing transactions would be falling mortgage rates, leading to a refinancing boom. That path would come with a serious recession, which would hurt real estate agents reliant on sales numbers, but help mortgage brokers and title insurers who benefit from refis. Most likely, home transactions will be level for the next two years.
New Home Construction Falls
New construction of single family houses has declined a small amount, though not nearly as much as in a typical recession. Starts so far in 2026 are on pace to drop by 11% from the 2024 level. The decline is not huge but certainly indicates less interest by buyers. The median price of a new house has dropped eight percent over two years, which probably reflects builders offering slightly smaller homes with fewer amenities. The survey of attitudes from the National Association of Homebuilders in conjunction with Wells Fargo shows poor expectations for the next six months, as well as weak current conditions and light foot traffic from prospective buyers.
Two underlying long-term trends continue to suppress current construction. The United States population is growing just half as fast as our long-run average (calculated from 1950 through last year). That trend is certain to continue. The birth rate has dropped, with no rebound likely. Immigration has become negligible since mid-2024, six months before President Trump began his second term. The 2028 election winner may ease up on immigration restrictions, but there does not appear to be a strong public sentiment for substantial increases in the number of foreigners allowed into the country. The only factor supporting more population growth is lower mortality rates among the elderly, but these probably won’t prop up our numbers enough to make a significant difference.
The second trend has been strength of multifamily construction. New apartment and condominium units built in the past 10 years substantially exceed the average of the preceding 15 years. As a result, apartment rents have been declining slightly, with rising vacancy rates. Families on the margin between continuing to rent and buying a first home have seen the factors shift toward staying in their apartments.
Mortgage Rate Outlook
The potential downside for residential real estate comes from continuing increases in long-term interest rates. The best framework for analysis begins with the global connections of financial markets. Interest rates around the world must equilibrate the demand for loans against the supply of savings. Then country-specific factors, such as inflation and repayment risk, push the local interest rate somewhat. Then the homeowner’s borrowing cost reflects investor appetite for mortgage-backed securities compared to government and corporate bonds.
Recently the U.S. spread between mortgage rates and Treasury bonds has been stable, so investors have not changed their preferences. U.S. government finances and policies might seem to have diminished global appetite for our country’s debt, but the rise in interest rates has been common around the world.
Thus we come back to global demand for loans and supply of savings. The demand side seems to be pushing interest rates up. Many governments around the world increased their government spending in the pandemic. Like the U.S., those governments argued that extraordinary government measures were warranted by the crisis. And like the U.S., they kept spending high even after the crisis was over. The United States is the world’s largest government borrower, followed by China.
Loan demand comes not only from governments but also from businesses. The new artificial intelligence capabilities have triggered huge capital spending. Two decades ago, we marveled that large companies such as Google and Facebook could be built with very little capital. Now the big players in AI need great amounts of capital to buy the chips and build the data centers that power AI.
The homebuyer looking for a mortgage is competing for loans with the U.S. Treasury, the Chinese Ministry of Finance, SpaceX, Anthropic, OpenAI and many others. Good luck getting a low interest rate.
Housing Market Forecast
The long-run pattern of residential transactions has been stable activity, punctuated by large surprises that lead to booms or busts. The current economic outlook points to continued stability of the residential market. Businesses dependent on activity—brokerages, mortgage brokers and title insurance companies—can plan for another year like 2026, but should also develop contingency plans for declining volume as well as rising volume.
Homeowners should not anticipate rapid price appreciation, nor expect a good refi opportunity any time soon.
Source: Forbes.com ~ By: Bill Conerly ~ Image: Canva Pro