Forecasters across the economic spectrum are approaching 2026 with cautious optimism, with GDP and home sale forecasts both improving on stronger economic indicators, including the most recent announcement that the Fed has cut interest rates for a third time in recent months.
Hoping the economic and political volatility of 2025 will soon be in the rearview mirror, economists are forecasting modest 2026 GDP growth of 1.8–2 percent in the U.S. — numbers that have improved over the past few months, along with a return to moderating inflationary trends.
In his Dec. 10 summary of the FOMC’s economic projections, Fed Chair Jerome Powell was even more optimistic, projecting that real GDP will rise 1.7 percent this year and 2.3 percent next year, somewhat stronger than the Fed projected in late summer.
In announcing a one-quarter point drop in the Fed Fund interest rate in December, Powell broadly hinted at the FOMC’s intention to hold to that course in 2026, with no further rate cuts intended in the near term.
“Having reduced our policy rate by 75 basis points since September and 175 basis points since last September, the fed funds rate is now within a broad range of estimates of its neutral value, and we are well positioned to wait to see how the economy evolves,” he said, adding, “Our two goals are a bit in tension. Everyone around the table at the FOMC agrees that inflation is too high, and we want it to come down and agrees that the labor market has softened and that there is further risk. Where the difference lies is how you weight those risks and, ultimately, where do you think the bigger risk is?”
One of the challenges the FOMC is facing as it moves forward is the lack of access to data during the government shutdown and the possibility that the data that will emerge could be distorted.
“We’re going to need to be careful in assessing particularly the household survey data,” Powell said. “There are very technical reasons about the way data are collected in both inflation and in labor so that the data may be distorted. So, we’re going to get data, but we’re going to have to look at it carefully and with a somewhat skeptical eye by the time of the January meeting.”
Interest rate cut welcome. Is it enough?
Despite a third cut in interest rates over the past six months, forecasters are predicting that without further cuts, mortgage interest rates may stay stubbornly in the 6 percent range in 2026, preventing some buyers from entering the market and restraining sellers who hold 3–4 percent mortgage rates from jumping back into the market.
But even at 6 percent interest rates, the real estate industry is confident that home sales will increase 10–14 percent in 2026, with the National Association of Realtors (NAR) on the optimistic side of that prediction.
At the Dec. 9 NAR Forecasting Summit, Chief Economist Lawrence Yun’s predictions were generally upbeat, citing a 14 percent increase in existing home sales, a 5 percent increase in new home sales, a 4 percent increase in home prices, a modest gain of about 400,000 jobs, and an unemployment rate that ticks up to 4.5 percent.
Still, the growth in home sales is not a slam dunk in 2026, as homebuyers face several hurdles. Inflation has made it difficult for first-time homebuyers to save a downpayment while also driving up the cost of new construction.
A long-term issue that continues to fly under the radar is wage disparity itself, which has put the dream of homeownership out of reach for an increasing larger swath of the population since 2000, reducing the potential pool of homebuyers.
One telling stat presented by Yun at the NAR conference was homeownership percentage by age group. While ownership numbers are stable in the 55+ age group, it has fallen in all other age groups — down 3 percent in the under-35 age group, down 1.5 percent in the 35–44 age group, and down nearly 2 percent in the 45–54 age group. While 2 percent may not seem like a substantial number, it potentially represents 2 million households who are renting rather than owning.
Further evidence of that shifting dynamic was evident in 2023, when there were a reported 130 million households in the U.S., with 85 million owner-occupied and 45 million renter-occupied, representing a new high for the percentage of households renting vs. owning. This is due in large part to three factors: affordability issues, growing investor dominance in the moderately priced home market, and the failure of new home builds to fill the more moderately priced home market gap.
While 2025 is ending on a positive note economically, consumers will be a key driver in the housing market in 2026, and consumer confidence unexpectedly plunged in November, according to Dana M. Peterson, Chief Economist, The Conference Board.
“All five components of the overall index flagged or remained weak,” he said in The Conference Board’s Nov. 25 release. “Consumers were notably more pessimistic about business conditions six months from now. Mid-2026 expectations for labor market conditions remained decidedly negative, and expectations for increased household incomes shrunk dramatically, after six months of strongly positive readings.”
Moderating home prices, increased inventory, a stable job market, and lower inflation all represent the positive environment the real estate industry has been hoping to see in 2026. Although consumer confidence and affordability may prevent 2026 from being a true breakout year, expectations for modest improvements are well supported.
