The U.S. real estate market entered 2026 with cautious optimism. After a period of elevated interest rates, affordability pressures and uneven buyer activity, many industry observers were looking for signs that the market might finally regain its footing. In 2025, the market had languished against the backdrop of a broader economy struggling with volatility around shifting tariff policy. This year, tensions in Iran and the closing of the Strait of Hormuz have created new economic ripple effects, tempering expectations for a housing-market rebound.
That volatility has been especially irksome because the underlying economy continues to show signs of resilience, including moderate growth and stronger than expected job numbers. Across the real estate industry, however, the outlook for the remainder of 2026 remains clouded by uncertainty.
Interest rates
The inflation rate, which had been on a decline from its COVID-induced peak in mid-2022, has now reversed course, steadily increasing from 2.3% in early 2025 to its current rate of 4.2%.
FOMC rate cuts – three in 2025 – that were key to dialing back mortgage rates are now frozen in place as economists keep a watchful eye on rising inflation.
On June 17, newly appointed Federal Reserve Chair Kevin Warsh announced a unanimous decision to maintain the target range for the federal funds rate at 3-1/2 to 3-3/4%, noting, “Inflation remains elevated relative to the Committee’s 2% goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy.”
In anticipating the FOMC’s June decision, Jeff Taylor, a board member for the Mortgage Bankers Association and founder of Mphasis Digital Risk, told CBS News in late May that homeowners and buyers should expect mortgage rates to remain in the mid-to-upper 6% range throughout 2026, with potential for rates to move into the 7% range if the Iran conflict is protracted. “This conflict has caused inflation, which causes investors to sell mortgage bonds, which pushes rates higher,” he said.
Shandor Whitcher, an economist with Moody’s Analytics, concurred with Taylor’s outlook during an October Research Webinar on June 17. “In terms of treasuries, we expect the 10-year to remain elevated due to fiscal policy and the overall inflationary environment. At most, we may see modest declines of a few basis points in the 30-year fixed rate mortgages, but overall rates will remain above 6% for the foreseeable future and are more or less where they are going to be through the end of the decade.”
Global economic concerns
Even as real estate professionals keep their eye on what is happening in Washington, the global economy is also an important consideration, as international conflicts have a trickle-down effect on the U.S. economy and hence the real estate market as well.
The World Economic Forum’s April outlook noted that the U.S. continues to trail global growth, with World Output reaching 3.4% in 2025, while the U.S. reported 2.1% GDP growth. The U.S. is anticipated to trail again in 2026 and 2027 at 2.3% and 2.1% respectively, with global growth projected at 3.1% and 3.2%, respectively.
JPMorgan Chase & Co. came to similar conclusions in its mid-year outlook, projecting modest growth of 2.1% to 2.3%, softened by higher energy prices and geopolitical developments. On the upside, steady labor markets and tech investment are expected to keep the overall economy on an even keel.
Beyond the obvious economic drivers, world economists are now focused on more concerning developments – headlined under the unexpected consequences category – and that is the long-term effect on world food production as well as the inflationary consequences of higher food prices triggered by the closing of the Strait of Hormuz.
In its May 28 article, The Next Food Crisis Is Already in Motion, Chief Economist Maximo Torero of the Food and Agriculture Organization of the United Nations (FAO) noted that the blockade has severely disrupted global fertilizer supply chains just as planting seasons advance across both hemispheres.
“As farmers face urea fertilizer price increases of 20% to 60%, on top of rising fuel, transport, and irrigation costs, the greatest risk is not immediate food shortages but rather cascading shocks that reduce future food production,” Torero explained. “It begins with energy-price spikes and logistics disruptions, followed by fertilizer shortages, then lower yields, with delayed transmission effects eventually leading to higher food prices and market volatility months later.”
In the World Economic Forum’s May 2026 Chief Economists Outlook, 94% of surveyed chief economists were anticipating higher global inflation in the coming year.
“Energy and food prices are identified as primary drivers, with supply shocks projected to have lasting effects,” the WEF noted in the executive summary. “While 58% of respondents do not see a global recession as imminent, there are limited expectations of increased economic resilience in the short term.”
Resilience and stability
On the positive side, economic activity in the U.S. continues at a solid pace, prompting the labor market to add 172,000 jobs in May — exceeding economists’ expectations.
Stability in the job market is always a good indicator for steady home sales, and as volatility eases — should the Iran conflict resolve — there is anticipation that sales could improve through the summer.
“Stronger employment momentum has helped existing home sales reach a five-month high,” said Sam Khater, Freddie Mac’s chief economist, in a June 11 release. “Importantly, we’re seeing homebuyers look past the short-term rate fluctuations and actively enter the market, signaling renewed confidence in homeownership opportunities.”
Although the market faces plenty of headwinds and affordability continues to keep potential buyers out of the market, the housing market is considered by some to be in a normal phase, with home prices growing at a more manageable pace and supply becoming far steadier, bringing a market long considered a sellers’ market back into balance.
One sign of this balance – one that favors homebuyers – is the growing incidence of seller concessions. In addition to a greater incidence of outright price cuts, sellers are more likely to assist the buyer with closing costs or may offer financial credits instead of completing requested home repairs.
Final note
Although muted, the housing market is exhibiting signs of strength, with home prices remaining steady, foreclosures proceeding at a very modest pace, and income growth offering hope for potential purchase activity in the future.
