Home Prices Will Increase Less Than Expected in 2026, New Forecast Shows

Home prices will grow at a much cooler pace through the end of the year than previously projected, offering welcome relief to would-be buyers facing affordability hurdles.

That's according to the Realtor.com® economic research team's 2026 housing forecast midyear update released on Wednesday. The forecast now predicts that existing-home sales prices will rise just 1.2% through the end of the year, down from an initial projection of 2.2%. For context, national prices grew 2% in 2025.

"The drop in the home price forecast for 2026 is largely based on the trend of softer sales and asking prices so far this year," says Realtor.com Chief Economist Danielle Hale. "Although inventory growth has moderated from our original projection, the number of homes for sale continues to rise, sapping some momentum from home prices."

Because this slower growth pace trails inflation, which is expected to run at a 3.4% rate for the year, buyers are getting a modest advantage in real dollars.

"From buyers' perspective, this is a much needed adjustment that begins to improve affordability when combined with mortgage rates that are lower than they were a year ago and incomes that are rising," adds Hale.

What should buyers expect?

The updated forecast predicts that mortgage rates will average 6.3% through the end of the year, unchanged from the original forecast in December. While this is a slight improvement compared to last year’s 6.6% full-year average, it remains dramatically higher than the 2013–19 average of 4%.

With hiring and unemployment staying on solid footing, forecasters anticipate that the median U.S. household income will grow 3.9% this year, surpassing the initial prediction of 3.6%.

Taken together, these economic shifts, combined with softer price growth, are expected to materially boost affordability for home shoppers through the fall and winter. In fact, the typical monthly mortgage payment for a median home sold is projected to fall 1.9% from a year ago.

Hale describes this as a "modest step in the right direction."

"When combined with higher expectations for income, the share of a paycheck that buyers need to put toward housing payments is even lower," notes the chief economist.

Given that inflation is set to run at a 3.4% annual rate, home prices are actually falling in real terms, which will reduce housing costs relative to other budget items. 

However, in a blow to buyers, inventory projections have been scaled back.

The growth of existing-home for-sale stock has been significantly revised down from 8.9% to 3.6%. 

New construction has also taken a step back, with single-family housing starts now projected to rise just 2% to 960,000, down from 3.1% anticipated at the end of 2025. 

Hale says that builders are pulling back on permit and start activity due to softer demand from buyers, particularly in the well-supplied South and West. 

Meanwhile, the national homebuilding deficit stands at an estimated 4 million homes. This offers ample opportunity for developers, especially in the chronically undersupplied Northeast and Midwest, where shortages are most acute and demand remains high. 

What should sellers expect?

With mortgage rates stuck above the 6% benchmark, existing-home sales are expected to see only limited growth from the initial forecast, ticking up 1% from the 30-year low reached in 2025 to an annual total of 4.10 million. 

Hale attributes this to a slower-than-expected start to the year caused by the outbreak of the war in Iran, which drove up energy prices and borrowing costs, while creating an atmosphere of economic uncertainty and fueling inflation fears.

However, sales steadied in April and advanced with greater assurance in May, buoying expectations for a stronger second half of 2026, yet still falling short of the initial forecast of a 1.7% growth rate and 4.13 million sales. 

As more balanced or buyer-friendly housing conditions take root in many markets and price growth slows, sellers are shifting their approach by listing their properties with more realistic asking prices right from the start.

"Sellers will want to approach the market mindfully and price accordingly," says Hale. "Softer asking prices so far in 2026 suggest that sellers have largely understood this context and adjusted to meet the moment. As a result, even though asking prices are dropping, price cuts are actually rarer this year than last year among for-sale homes."

As a result, these more reasonable expectations from sellers are helping buyers and sellers find common ground and close deals.

What should renters expect?

Rents are projected to drop 1.2% for the year, outpacing the earlier prediction of a 1% decline, thanks to an influx of new rental units entering the market.

Renter mobility is expected to rise as more renters seek affordable housing or upgrade to better units. Midsize metros such as Colorado Springs, CO, Austin, TX, and Denver will continue to attract young professionals, given their affordability and job opportunities.

Separately, rental markets in the San Francisco Bay Area are drawing renewed attention, as the AI boom fuels job growth and accompanying rental demand.

"Meanwhile, long-term renters in expensive markets like New York City may continue to feel trapped in below-market rent-stabilized units—a dynamic that could intensify following the adoption of a rent freeze that was a key pillar in the [Zohran] Mamdani platform," says Hale.

Looking ahead, whether renters continue to enjoy relief largely depends on whether multifamily rental construction can keep up with surging demand, especially as young adults aged 25 to 29 strike out on their own.

"Ultimately, if supply construction keeps pace with—or outpaces—this growing demand, rents should continue to soften. If construction slows before demand catches up, the current relief could stall or reverse," concludes Hale.