We saw an early surge in the real estate market this year thanks to falling mortgage rates. Naturally, colleagues have been asking the big question: Is this the start of a strong year—or just another short-lived bump?
Here’s what I’m telling them.
First, mortgage rates are now in the 5% range, and compared to a year ago that’s roughly the equivalent of saving one monthly mortgage payment per year. That’s huge for buyers.
But here’s the bigger structural shift: for the first time in five years, homeowners with mortgage rates above 6% now outnumber homeowners with sub-3% loans.
Those ultra-low pandemic mortgages have been one of the biggest reasons people refused to move. When nearly everyone had a 3% loan, selling meant giving up the best financial asset they owned. Now that balance is starting to flip.
And that’s actually healthy. A market where more homeowners have higher mortgage rates creates more willingness to move, which helps inventory turnover. We desperately need that because Americans simply aren’t moving as often as they used to.
Unfortunately, rates probably won’t fall much further.
If anything, they’re likely near the low point for the year (see my article on the Iran war). So, the real problem isn’t rates anymore—it’s affordability.
To understand that gap, consider this: the median household income in the U.S. is about $75,000, but buyers would need roughly $40,000 more income to comfortably afford the median-priced home, according to a recent analysis from Redfin. Income and housing prices simply aren’t aligned.
Now, you could argue buyers finally have some leverage. And that’s true. We’re seeing the largest buyer discounts in 13 years, with the typical sale closing 7.9% below asking price, according to Redfin.
Lower mortgage rates plus larger discounts should make homes easier to buy, right? Maybe not.
The root problem that created this housing crisis—lack of inventory—has not been solved. In fact, it’s getting worse (see my story on the growing housing shortage below).
Without enough homes for sale, frustrated buyers often reach the same conclusion: why fight over limited options in an unaffordable market? They rent instead.
Another indicator I’m watching closely is the outlook from home improvement retailers like Home Depot and Lowe’s. Their performance tends to track housing activity closely. When homeowners are buying, selling, and renovating, those stores thrive.
This year, however, those companies are forecasting weak growth—just a few percentage points. That suggests consumers remain cautious and housing activity could stay muted.
So my answer to the big question? No—I don’t think 2026 will be a breakout year. And I was saying that even before the Iran war added more uncertainty to the global economy. Until inventory rises and affordability improves, the housing market isn’t poised for takeoff—it’s still taxiing on the runway.
🔗 Want to read more insights on buyer discounts, see Redfin's article
