Key facts
- A surge in mortgage rates has stalled an anticipated early 2026 housing market rebound.
- Real estate brokers expect a 10-12% decrease in home sales nationwide.
- An estimated 400,000 home sales may be lost due to the market slowdown.
- Foreclosure auction activity increased 23% year-over-year in Q2 2026.
- Foreclosure auctions in Q2 2026 reached 66% of Q1 2020 levels.
- FHA-insured mortgages and loans from the COVID-19 era are driving foreclosure increases.
- U.S. home prices rose 1.1% year-over-year in May.
- Inflation was at 4.2% in May, causing home prices to decline in real terms.
- U.S. single-family home prices rose 0.3% in May.
- Single-family home prices were up 2.2% year-over-year in May.
- A shortage of available homes, especially starter homes, is supporting single-family prices.
An anticipated early 2026 rebound in the housing market has been stalled by a surge in mortgage rates, which real estate brokers attribute in part to the conflict in Iran. Brokers now forecast a 10-12% decrease in home sales, projecting an estimated loss of 400,000 sales across the nation. This downturn contrasts with earlier expectations for market recovery.
Adding to market pressures, foreclosure auction activity increased significantly in Q2 2026, reaching 66% of Q1 2020 levels. This represents a 23% year-over-year rise, with FHA-insured mortgages and loans originated during the COVID-19 housing boom being the primary drivers. Government-backed loans have shown the most pronounced increase in foreclosure activity.
Despite these challenges, national home prices showed some growth in May. The S&P Cotality Case-Shiller National Home Price Index reported a 1.1% year-over-year increase for May, an acceleration from the previous month. However, when accounting for inflation, which stood at 4.2%, home prices effectively declined in real terms. Separately, U.S. single-family home prices rose 0.3% in May, recovering from an April dip. Year-over-year, single-family home prices were up 2.2%, a trend attributed to a persistent shortage of available homes, particularly starter homes.
The confluence of rising mortgage rates, increased foreclosures, and lagging real price growth suggests a complex and challenging environment for the housing market, deviating from earlier projections of a robust rebound.