A home is often a family’s largest asset, so the outlook for the housing market is at the top of mind for many.
What will 2026 bring? Here’s our outlook, broken down into the four factors that we expect will drive housing trends in 2026.
Evolving Economy: At the highest level, the housing market will take its cues from the overall health of the economy. Overall housing activity is between 15% and 18% of gross domestic product, therefore an expanding economy creates a more favorable environment for housing.1
Other economic measures also help indicate what’s next for the housing market. For example, robust job growth and rising wages could be expected to support housing demand—but stagnant employment statistics might give a more mixed signal.
Interest Rates: Nearly 75% of today’s homeowners hold mortgages with rates below 5%. This, for some, is a good reason for them to stay put in their current homes.2
But will that trend reverse in 2026? The Federal Reserve at its September 2025 meeting cut short-term interest rates and indicated that it was considering future rate adjustments. When the Fed guides these rates lower, borrowing rates—from mortgages rates to car loans to credit cards—tend to trend lower across the board.3
Fannie Mae, the mortgage finance giant, said in its Q3 2025 outlook that it anticipates homebuying activity to pick up through the end of 2026 as borrowing costs drop.4
Pro Tip: Home lenders often follow the 28/36 rule for mortgages, but we are often a bit more cautious and encourage people not to push the limits.
The 28/36 rule says your monthly housing costs should not exceed 28% of your gross monthly income, and your total debt (including housing) should not exceed 36%.
“Don’t become a slave to your lender,” writes Mick Owens, author of the book Diamond of Life: The Five P’s of Success and Significance. “Use discretion. A house doesn’t need to be massive or expensive to become a home or a safe sanctuary for your family.”
Supply & Demand: One of the key factors influencing supply has been the “locked-in effect,” where current homeowners don’t want to move because of their low mortgage rates. But if rates trend lower, more supply is expected to come to the market in 2026. Also, economists anticipate builders will boost residential construction, but some builders remain cautious due to costs, including material and labor.5
The Role of AI: A landmark study by the McKinsey Global Institute—an arm of the global management consulting firm McKinsey & Co.—says that by 2030, artificial intelligence (AI) could automate 30% of the hours worked across the U.S. economy 6
However, the Bureau of Labor Statistics believes that the timeline for AI to automate today’s jobs may take longer than many think. In a February 2025 report, BLS economists said, “There have been many claims about new technologies displacing jobs, and although such displacement has occurred in the past, it tends to take longer than technologists typically expect.”7
If interest rates continue to trend lower in 2026, we expect that this decrease will be the #1 driver on the housing market. A person with a 4% mortgage has little reason to consider making a change when mortgage rates are near 7%. But if rates dip into the 5% range, we anticipate that may make all the difference.
Please let us know as soon as possible if you’re watching the housing market. Often, it can be helpful to start making financial preparations long before the “For Sale” sign goes up.
- NationalAssociationofHomeBuilders.org, 2025
- Redfin.com, February 6, 2025
- FederalReserve.gov, September 17, 2025
- BusinessInsider.com, September 24, 2025
