The Economics of Housing: Rents, Prices, and Affordability

The 2026 U.S. housing market stands at a critical crossroads.

Housing affordability challenges dominate the narrative, influencing decisions for millions of Americans.

This year, forecasts paint a picture of modest growth and persistent struggles.

Understanding these dynamics is key to navigating the complex terrain ahead.

Home Prices in 2026: A Landscape of Stagnation

National projections for home price growth are remarkably subdued.

J.P. Morgan forecasts 0% growth in home prices nationally, balancing rising demand against increasing supply.

Zillow predicts a slightly more optimistic 1.9% growth across the country, with most major metros seeing upticks.

Redfin expects only a 1% year-over-year rise in median sale prices, curbed by high mortgage rates.

The National Association of Realtors anticipates no major declines, possibly a 3% gain.

• Regional trends show declines on the West Coast and Sun Belt regions due to post-pandemic oversupply.
• Markets in the Northeast and Midwest are heating up, with rising prices from low inventory.
• Historical context reveals that over the past decade, prices have nearly doubled, but growth is now slowing.

Supply factors are crucial in driving this stagnation.

The U.S. faces a persistent shortage of 1.2 million homes, below other estimates.

This structural deficit persists despite recent inventory increases.

New home formations have netted near zero over 30 years, exacerbating the issue.

Rents: The Gradual Ascent Amid Supply Shifts

Rent growth is expected to moderate but remain positive in 2026.

Redfin predicts a 2-3% year-over-year rise in rents by the end of the year, matching inflation.

This is driven by slowing apartment construction after a surge in 2021-2022.

Higher rental demand emerges as buying becomes less affordable.

• Multifamily deliveries are up, but renewal rates remain high, with low move-outs to buy.
• Gen Z renters are particularly delayed by affordability issues, aspiring to own but stuck renting.
• Immigration enforcement may cap demand in regions like South Florida and Southern California.

The broader context ties rents directly to the overall housing shortage.

More multifamily units are needed to address the deficit, both for rent and sale.

Affordability: Metrics, Improvements, and Ongoing Barriers

Current affordability metrics highlight widespread concern among Americans.

82% of Americans see housing costs as a significant local issue, according to surveys.

The NAR affordability index is 35% below pre-COVID levels, indicating severe strain.

However, 2026 brings some glimmers of hope.

Monthly payments may decline for the first time since 2020, offset by modest price growth.

• Zillow notes that 20 of the 50 largest metros could become affordable by year-end.
• Wages are growing faster than prices for the first time since the Great Recession.
• NAR projects a 14% increase in home sales from lower rates and more inventory.

Mortgage impacts are pivotal in shaping affordability.

Rates are expected to average 6.3% for 30-year fixed loans, down from 6.6% in 2025.

A 1% rate drop could qualify 5.5 million more households for homeownership, including 1.6 million renters.

Demographic shifts are also at play, with rising single female buyers and lower marriage rates.

Supply and Construction Trends: Building the Future

New construction faces a mix of opportunities and challenges in 2026.

Single-family starts are projected to be flat or see minimal gains.

New-home sales show resilience compared to resales, with a 1% gain expected.

• Community counts are up by 11%, aiding demand capture but speculative builds remain cautious.
• Zoning limits on density, such as for townhomes, hinder construction in many areas.
• Overbuilding risks in states like Texas and Florida could lead to price declines.

Fed easing is helping lower builder loan rates, boosting inventory gradually.

The overall shortage requires concerted efforts in both single and multifamily housing.

Sales and Demand Forecasts: Signs of Recovery

Home sales are gradually improving, signaling a slow recovery.

Existing home sales are expected to rise by 3% to 4.2 million annualized units.

NAR projects a more optimistic 14% increase nationwide in sales, driven by lower rates.

• Inventory levels are 20% above year-over-year but still below pre-COVID numbers.
• Life events, such as job changes or family growth, are eroding the lock-in effect from previous years.
• Purchase applications are ticking up in early 2026, with pending sales as a key indicator.

This gradual uptick suggests renewed buyer interest amid improving conditions.

Policy, Regional, and Emerging Factors

Policy changes are slowly addressing critical issues like zoning and land-use reforms.

Density improvements are needed but will take time to impact the market significantly.

Regional outlooks vary widely, with markets like Chicago having strategic moments.

Emerging trends include homebuilder incentives like rate buydowns and the absence of a recession.

The "Great Housing Reset" is expected to unfold gradually over years, not as a sharp correction.

In conclusion, the 2026 housing market is a blend of challenges and cautious optimism.

Affordability remains a critical issue for many, but incremental improvements offer hope.

By staying informed on these trends, stakeholders can make better decisions in a complex environment.