Housing Market Forecast: Will Home Prices Fall in 2026?

Will the new year finally bring some much-needed relief to weary homebuyers?

Since 2023, frustrated buyers have struggled with elevated mortgage rates, limited inventory and high home prices — factors that have created a veritable affordability crisis. According to data presented during a recent National Association of Realtors (NAR) summit, prices have jumped by 27% to 80%, depending on the market, over the past five years.

When combined with mortgage rates that have averaged close to 7% for the past two years, it's no wonder buyers have gone into sticker shock. However, there's cause for muted optimism for 2026, as both mortgage rates and price pressures are expected to ease.

Kara Ng, senior economist at Zillow, says 2026 will be a positive — albeit small — step toward rebalancing the housing market. Prospective buyers can expect overall improvement in homebuying conditions.

"If I were to give the 2025 housing market a grade, I'd probably give it a C," Ng says. "What we're expecting for 2026 is like a C-plus."

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Why home prices will be more affordable in 2026

Most housing economists are forecasting a modest 1% to 2% increase in home prices. Bright MLS is on the low end with a 0.9% price increase, while the NAR is on the high end with 4%.

You might be wondering how rising prices translate into an improvement in affordability. There's an important distinction here. The forecasts are all for nominal price increases without adjustments for other factors, such as inflation.

Real prices, on the other hand, account for influences like wage growth and inflation and are a closer representation of a buyer's purchasing power. That's why it's possible for analysts like Danielle Hale, chief economist at Realtor.com, to forecast a 2.2% nominal price increase next year and still expect real prices to fall.

The reason, Hale explains, is that incomes are expected to grow next year by 3.6%, while inflation is projected at around 3% — both higher than the anticipated rise in home prices. With more disposable income and slower price growth for homes compared to other goods and services, "those monthly payments will actually drop as we move into 2026," she says.

However, Lisa Sturtevant, chief economist at Bright MLS, points out that there will be significant regional differences.

"There are some markets where inventory is still tight, where home prices are still rising," Sturtevant says. "Then, there are… other markets where inventory has surpassed 2019 levels, and we're seeing prices start to fall."

Housing inventory continues to improve

Affordability will also benefit from an ever-improving housing supply. After hitting rock bottom at the start of 2022, the number of homes for sale has been steadily increasing. According to the NAR, there's a 4.4-month supply of homes on the market as of November, which means if homes sold at their current pace, the supply would run out after a little more than four months.

That inventory is forecast to continue rising in 2026 by about 10% according to both Realtor.com and Bright MLS. The uptick will be due to a combination of new listings entering the market and currently listed homes taking longer to sell.

Regardless of how the new supply comes about, more inventory is good for the market. More available homes help reduce buyer competition and can also help keep price growth in check, improving affordability for would-be home buyers.

In general, expect markets in the Northeast and the West Coast to have limited inventory and more buyer competition, leading to slightly higher prices. Meanwhile, markets in the Midwest and South will have a larger supply of homes for sale and lower price growth.

Although housing experts are generally optimistic about improving conditions next year, there are potential headwinds that could derail even the most precisely calculated forecast. Increasing labor weakness and consumer prices, for instance, could result in continued homebuyer skittishness — and dampen any improvement in the market.

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