Key facts
- A strong economy is keeping mortgage rates elevated and capping housing demand.
- Buyers and sellers are waiting for more favorable interest rates.
- Housing inventory is expected to increase in early 2026.
- A recession is unlikely in 2026, with market recalibration predicted.
A robust economy may be counterintuitively hindering the housing market by keeping mortgage rates high and suppressing buyer demand, according to Logan Mohtashami, lead analyst at HousingWire. In a discussion on the HousingWire Daily podcast, Mohtashami explained that while the market is becoming more balanced, economic strength is preventing a significant drop in borrowing costs.
In 2025, the U.S. housing market saw a substantial slowdown, characterized by economic uncertainties and record-high home prices, which resulted in historically low home sales. The year also saw a slight increase in housing inventory and longer periods for homes to remain on the market as buyers adopted a wait-and-see approach. However, the market showed signs of recovery towards the end of 2025, with December sales marking the strongest performance in three years. Experts anticipate a rise in housing inventory starting in February 2026, with housing activity expected to accelerate as interest rates become more favorable.
Looking ahead to 2026, a recession is not anticipated. Instead, the market is expected to undergo a period of recalibration, with 68% of surveyed agents believing an increase in inventory will stimulate market activity. Top agents suggest that buyers will find opportunities with leverage, while sellers will need precise pricing and professional guidance. Declining interest rates in 2026 are predicted to invigorate the market and lead to a more balanced real estate environment. Mortgage rates, which averaged 6.91% for a 30-year fixed-rate mortgage and 6.13% for a 15-year fixed-rate mortgage at the start of 2025, had dipped to 6.15% and 5.44% respectively by January 2026, following rate cuts at the end of the previous year. A significant majority of loan officers surveyed expect an increase in mortgage originations in 2026, driven by stabilizing or falling rates.