A couple of weeks ago, we published "National Association of Realtors Expects a Stronger Housing Market in 2026." Last week, Realtor.com® ran a story under the headline "Home Prices Will Increase Less Than Expected in 2026, New Forecast Shows." (The association (NAR) and Realtor.com are different organizations.)
Then, last Friday, The Wall Street Journal wrote an article, "Why Home Sales Are Poised to Pick Up This Summer." To be fair, some of the differences between these three reports have more to do with interpretation than hard data.
But there are also some stark differences in the forecasts. For example, National Association of Realtors (NAR) chief economist Dr. Lawrence Yun thinks the median home price will climb 4% this year, while Realtor.com now expects it to increase by just 1.2%.
Why Inflation Matters to Homeowners
This discrepancy could make an enormous difference to homeowners. The latest figure from the most reliable gauge of general prices, the personal consumption expenditures (PCE) price index, says consumer inflation was running at 4.1% year-over-year in May.
June's figure is due on Jul. 31, and most expect it to show a lower rate of inflation, owing to oil prices falling as a result of the memorandum of understanding that was expected to reopen the Strait of Hormuz. But as we write this, oil prices are rising as the Middle East conflict re-escalates and the strait is closed. So, the inflation rate in the coming months might be back up to an annualized 4.1% — or perhaps even higher.
Consumer inflation and home price rises matter to homeowners. If Yun's right, and home prices rise 4% in 2026, then a 4.1% consumer inflation rate leaves them close to where they started in "real terms" (meaning, allowing for inflation).
In other words, the goods and services they could buy for $100 at the start of the year will cost them $104.10 on Dec. 31. And their homes' values will have risen by $4 per $100 of value over the same 12 months. So, they'll have made no real profit over the year, but they're unlikely to lose sleep over the 10 cents per $100 they lost.
However, suppose Realtor.com is right, and home prices rise only 1.2% in 2026. They'll still have to pay, on average, $104.10 at the year-end for goods and services that cost them $100 on Jan. 1. But, come Dec. 31, their homes will be worth only $101.20 per $100 of January value, meaning they'll have made a loss in real terms.
This Isn't Normal
We're not used to this. Realtor.com reports that, between 2013 and 2019, home prices rose 6.5% annually.
As recently as 2024, the PCE price index showed consumer inflation running at 2.5%, according to ChatGPT, while home prices rose 4.7% that year. In other words, homeowners made real money in 2024
Some Reasons Why Home Prices Aren't Rising Faster
There are several reasons why home prices are rising more slowly than usual:
- Consumers are already squeezed by higher prices and struggle to take on sharply rising homeownership costs, including property taxes, homeowners insurance premiums, and homeowners' association fees.
- "Inventory" (the number of homes for sale) is improving. True, it's still not back up to historical norms, but there is extra supply, which affects prices.
- New construction has increased, especially in some parts of the country. Again, that's additional supply that competes with sellers of existing homes.
- Fewer investors are competing as home buyers, owing to higher borrowing costs and falling rents, which are expected to be down 1.2% in 2026, says Realtor.com.
However, we think that the biggest obstacle to rising home prices is high mortgage rates. Their weekly average for a 30-year fixed-rate mortgage (FRM) was 6.49% during the week ending Jul. 9, according to Freddie Mac.
The Biggest Brake on Rising Home Prices
That 6.49% rate isn't actually that high by historical standards. It was 7.79% in October 2023, and 18.39% (no, really!) in October 1981, says Freddie.
Of course, most home buyers today can't remember 1981. And they know the 2023 figure was the peak hangover from the Covid pandemic.
What they'd really like is a mortgage rate in the 5%-6% range or even lower. It was at 5.98% on Feb. 25, which many of us thought marked the revival of the housing market.
But three days later, the conflict in the Middle East started. And today, we can't find a single credible source who thinks we'll see sub-6% mortgages for years (not weeks or months) to come.
Here are the latest forecasts from some of the most notable experts. Note that these were published before the current re-escalation in the Middle East conflict. If that creates a new wave of inflation, all these forecasts could prove too optimistic:
- Fannie Mae — Expects the 30-year FRM rate to average 6.3% in both 2026 and 2027
- Mortgage Bankers Association — 6.5% in 2026, 2027 and 2028
- Realtor.com — 6.3% in 2026
- NAR — 6.5% in 2026
This creates a dilemma for first-time homebuyers. Should they wait a few years until mortgage rates fall, and hope to buy a home before the extra demand that generates pushes up home prices too far? Or should they buy now and refinance their mortgages when those rates eventually fall?
There are sound arguments on both sides. So, it's up to individual would-be purchasers to decide which they prefer.
