Navigating the New Era of Stability

After four years of pandemic-driven chaos, frozen migration, volatile mortgage rates, severe affordability challenges, and wildly uneven regional supply, the U.S. housing market is finally turning a corner. Compass's first-ever Housing Market Outlook reveals a market transitioning from disruption to balance, with significant implications for everyone navigating real estate decisions in the year ahead.

The Big Picture: What to Expect in 2026

Home Prices: Flat is the New Up

We're forecasting essentially flat national home prices in 2026, up just 0.5%: with a plausible range from -3.6% to +4.6%. This would be unusual: over the past 40 years, national home prices have only declined three times. But the conditions are in place. At the end of 2025, 11 of the 20 major markets tracked by the Case-Shiller Index show prices below where they were in 2024.

This isn't a crash. It's how affordability returns, not through dramatic correction, but through an extended period of flat home prices, rising incomes (currently growing at about 4% annually), and gradually falling mortgage rates.

Home Sales: Momentum is Building

Home sales enter 2026 with the strongest forward momentum since the pandemic. After three years stuck around 4 million existing home sales annually, we're forecasting modest growth of approximately 5%, bringing sales to ~4.25 million homes.

The data supports this optimism:

• Purchase mortgage applications are running 15-25% higher year-over-year

• Weekly pending contracts reached their highest Q4 levels since 2021

• Luxury properties continue to outperform entry-level price points

In an ideal "Goldilocks" scenario where mortgage rates hold near 6% and pent-up demand releases sales could reach 4.5 million, representing a very strong 10% growth rate.

Inventory: More Choices, But Regional Splits Persist

We forecast approximately 10% inventory growth in 2026. After three consecutive years of rapid increases, the pace is finally moderating. Supply is projected to peak above 1 million active single-family listings in summer 2026 for the first time since 2017, before settling around 850,000 homes by year's end.

The regional story is stark: Supply is finally growing in the Northeast and Midwest (Connecticut has 60% fewer homes than 2019), while Sun Belt growth is slowing (Texas has 50% more inventory than 2019).

Mortgage Rates: Trading in a Range

Rates are expected to trade between 5.9% and 6.9% throughout 2026, averaging around 6.4% about 0.4 percentage points lower than 2025. The labor market will determine direction: rising unemployment could pull rates into the high-5s; stronger employment or hotter inflation could push them back toward 7%.

Over the past three years, there have been three moments when rates dipped close to 6% and each time, buyer demand noticeably picked up. At 6.5%, buyers stay on the sidelines. At 6.1%, they begin to move.

Three Defining Trends Shaping 2026

1. Improving Affordability Through Patience, Not Panic

Housing affordability reached its worst level in nearly 40 years by late 2022. Today, homes remain roughly 25% above what's traditionally considered affordable. But here's the shift: affordability is gradually improving not through a dramatic price crash, but through flat prices and rising incomes working together over time.

At 4% annual income growth, the market returns to traditional affordability levels within several years, even without significant mortgage rate relief. We're already three years into this process. Markets like Austin and Western Florida, which saw the steepest pandemic run-ups, are now offering buyers their first real bargains in years.

The End of Mortgage Rate Lock-In

For the first time since the pandemic, by the end of 2025 there will be more American homeowners with expensive mortgages (rates above 6%) than those with ultra-cheap ones (rates below 3%). Nearly 20% of mortgages now carry rates above 6%, creating a growing pool of potential sellers who won't feel locked in place.

The implication: expect slightly higher transaction volume as lock-in continues to recede. This won't unleash a flood of inventory, but it removes one of the key constraints that has kept the market frozen.

2. Unlocking American Mobility: The End of "The Great Stay"

American mobility collapsed after 2022, reshaping migration patterns across the country. According to JBREC, the pace of relocation fell 30% from 2021 to 2023 and hasn't recovered. We've called this period "The Great Stay" staying in our jobs, in our towns, in our houses.

This phenomenon created sharp regional imbalances:

• Northern metros like Chicago, Boston, and New York: Extremely tight inventory, fast-moving markets

• Sun Belt markets like Tampa, Dallas, Austin: Inventory swelled as expected buyers never arrived

But the conditions creating The Great Stay are beginning to shift. Pent-up demand is building surveys show the share of homeowners who want to move within two years has jumped from 10% to 25% since 2022.

What Could Unlock Mobility

Two forces have kept Americans frozen: mortgage rate lock-in (fading, as discussed) and job market anxiety. The national hiring rate and "quits rate" have fallen to levels typically associated with recessions. Workers are "job-hugging", holding onto stable positions rather than taking risks. And when people won't change jobs, they won't change homes.

Any sustained uptick in hiring or job confidence would signal that housing mobility could follow.

3. An Economy Divided: The K-Shaped Housing Market

The third defining trend is economic division itself. The economy is experiencing a split where older, affluent households see wealth gains driven by strong equity markets and AI-related growth, while younger, lower-income borrowers face increasing financial pressures.

Shadow Inventory vs. Shadow Demand

By November 2025, listing withdrawals climbed to nearly 60% of new listings—the highest in recent history. These frustrated sellers represent potential "shadow inventory."

But here's the twist: most home sellers are also buyers. When a seller pulls their listing, they also delay their next purchase. For owner-occupiers, every withdrawn listing represents two delayed transactions. This could actually represent "shadow demand" that floods the market when conditions improve.

Throughout 2025, purchase mortgage applications ran 15-25% higher year-over-year, yet actual sales rose only 2-4%. This gap represents buyers who initiated the process but stepped back. A small move lower in rates could unlock both sides simultaneously.

Luxury Leads the Way

The share of transactions in the top quartile (homes over $1 million) has been rising for several years and strengthened in 2025. Affluent buyers are less sensitive to mortgage rates many pay cash. They benefit from stock market gains and buy for discretionary reasons, providing stability at the top even when the mainstream market struggles.

Notable Local Markets in 2026

National averages will tell only part of the story. Here are markets to watch:

Florida: Poised for a transaction volume rebound after three hurricanes suppressed 2024 activity. Pending sales are already running roughly 10% above last year, even as prices face continued pressure from elevated inventory.

Bay Area: Experiencing an AI-driven boomlet, with rising rents and early signs of stabilization in San Francisco's long-declining condo market. Silicon Valley remains intensely competitive due to chronic inventory shortages.

Dallas-Fort Worth: After years of rapid growth, now offers first-time buyers their best opportunities in nearly a decade, with inventory ten times higher than at the start of 2022.

Washington D.C.: Faces uncertainty as federal workforce reductions ripple through the local economy, contributing to a notable rise in new listings throughout 2025.

What This Means for You

For Buyers

In many markets, 2026 offers improved buying conditions. Sun Belt metros that saw steep pandemic-era price increases now offer more selection and negotiating leverage. The affordability picture is evolving gradually through flat prices and rising incomes, each year that prices stay flat while incomes rise helps close the gap.

Regional differences matter: In the Northeast and Midwest, inventory remains tight. Markets like Chicago, Boston, and Connecticut continue to favor sellers, with homes moving quickly.

For Sellers

In a flat-price environment, pricing realistically from day one is critical. Roughly 42% of active listings nationally have taken a price cut one of the highest late-year readings in more than a decade. Homes that sit too long often end up selling for less than they would have with accurate initial pricing.

The good news: buyer demand is improving. Weekly pending contracts are at their highest fourth-quarter levels since 2021. The mortgage rate lock-in effect is fading, meaning more households are entering the market.

For Real Estate Professionals

In a market defined by regional variation and shifting dynamics, local expertise matters more than ever. What's true for Tampa may not be true for Boston. What works in Dallas may not work in San Francisco. The leading indicators in Compass's full report provide real-time signals for interpreting local conditions and translating them into actionable advice.

The Bottom Line

2026 marks the beginning of a housing market defined by stability, not dramatic swings. After years of volatility, the forces shaping the market are falling into healthier balance, with gradually improving affordability and normalized levels of both housing supply and demand.

Home sales can grow again. Affordability pressures are easing. Many pandemic-era distortions are finally unwinding. But regional differences will matter more than ever national averages will mask sharply different local realities.

As Mike Simonsen, Compass Chief Economist, notes in the report's foreword: "Data is the antidote to fear. And providing you with the most relevant data, alongside clear explanations, is our main goal in creating this report."

Read the full 2026 Housing Market Outlook →