Each week, I analyze the evolving dynamics of the market, identifying emerging trends, shifts in momentum, and key considerations for real estate professionals. Last week, REALTOR.COM released its 2026 forecast projecting improved housing affordability, driven by lower average mortgage rates, rising household incomes, and modest home price growth. Mortgage purchase applications have climbed to a three-year high, with rates holding near 6% for 18 consecutive weeks. Attention now turns to this week’s Federal Reserve meeting; a cooler inflation reading has markets leaning toward a December rate cut.
December 8, 2025
2026 BRINGS A TURN TOWARD AFFORDABILITY — EVEN AS HOME PRICES KEEP RISING. The housing market is expected to become more affordable for buyers in 2026, despite continued price gains for sellers. Mortgage rates are projected to average 6.3%, while home prices are anticipated to rise 2.2%. But with incomes outpacing inflation, the typical share of income devoted to housing costs is forecast to fall below 30% for the first time since 2022, improving affordability outlooks. Existing home sales are projected to increase 1.7% to 4.13 million, supported by improving affordability and stronger demand. Meanwhile, for-sale inventory is expected to expand nearly 9% year over year, further easing market constraints and providing buyers with more options. Full story from REALTOR.COM →
- Why this Matters: This forecast essentially signals a more balanced housing market in 2026, where affordability improves without undermining seller equity. The outlook reflects a healthier affordability environment that is expected to broaden access to homeownership. For buyers, lower borrowing costs and expanding inventory will translate into greater choice and reduce competitive pressures. The combination of modest price appreciation and stronger affordability enhances purchasing power, making 2026 a more favorable time to enter the market. Sellers, in turn, are projected to benefit from continued equity gains, albeit at a more measured pace than in prior years.
DECEMBER HOUSING DEMAND NEAR 3-YEAR HIGH AS SPREADS IMPROVE. In recent years, when mortgage rates dip below 6.64% and approach 6%, purchase demand reliably firmed — but rates didn’t stay there long enough to generate sustained momentum. In 2025, sub-6.64% rates have held for 18 consecutive weeks, lifting purchase applications to a three-year high in December. Looking ahead, the combination of this year’s rate cuts and improved mortgage spreads positions the 2026 market with its best potential in recent years to maintain rates near 6% for an extended period. On the supply side, housing inventory has returned to a healthier balance. While the pace of inventory growth slowed from 33% to 15.26% in 2025, year-over-year gains remain solid, signaling a more stable and sustainable market environment. Full story from HOUSINGWIRE →
- Why this Matters: Housing is a cornerstone of economic activity, influencing construction, lending, consumer spending, and household wealth. Sustained mortgage rates near 6% enhance affordability, broadening access to homeownership and strengthening market participation. Rising purchase application volumes reflect increased demand, which in turn supports transaction growth. At the same time, a more balanced inventory environment reduces volatility, stabilizes home prices, and mitigates the risk of supply shocks that can disrupt broader economic conditions. Together, these dynamics foster a healthier, more sustainable housing market where buyers can make decisions based on long-term financial considerations rather than short-term rate volatility.
INFLATION REPORT SIGNALS DECEMBER RATE CUT AND A CLIFFHANGER 2026. Fed officials are expected to prioritize labor market concerns at this week’s meeting — the final one of 2025 — with markets pricing in an 87% probability of a quarter-point rate cut. While headline PCE (the total inflation rate) rose for the fifth consecutive month, core PCE (inflation minus food and energy costs) has held above 2.8% for five straight readings, underscoring persistent inflation pressures. This backdrop suggests limited scope for further easing in 2026. Market expectations reflect this caution, with only a 25% chance of another cut in January, according to CME FedWatch. Full story from BARRON’S →
- Why this Matters: The Federal Reserve’s expected quarter-point rate cut carries significant implications for consumers, investors, and policymakers. For consumers, lower borrowing costs would ease financing conditions, particularly in housing and credit markets, supporting affordability and demand. However, with core PCE inflation still above 2.8% for five consecutive readings, the scope for additional cuts in 2026 may be limited.
THE BOTTOM LINE: The latest data signals a pivotal shift toward improved housing affordability in 2026. For consumers, this means greater access to homeownership and more options as supply constraints ease. Rising purchase applications highlight renewed buyer confidence. For the broader economy, a more balanced market supports stability across construction, lending, and consumer spending, while sustained affordability strengthens household finances and drives activity in related industries. The Federal Reserve’s anticipated December rate cut offers near-term credit relief, though persistent inflation may limit further easing in 2026. Overall, housing is positioned as a stabilizing force for economic growth, benefiting buyers, sellers, and investors alike.
Disclaimer: this is a compilation of industry news from trade media and industry groups; it does not share any forward-looking predictions or projections.
