The answer, Kushi said, lies in six forces shaping the outlook: affordability, demographic demand, regional divergence, localized strain, rising inventory and the continued advantage for new homes.
Affordability and demographics
Mortgage rates are expected to remain in the low-6% range next year, according to a report released this week by First American Data & Analytics.
That alone will not unlock the market, Kushi said, but cooling home-price growth paired with income gains should continue to lift affordability.
Price appreciation has already slowed to the weakest pace since 2012, the report showed. If that trend holds, Kushi said markets with growing inventory and modest price cuts may see the reemergence of more buyers.
By Kushi’s estimate, the U.S. logged roughly 4 million fewer existing-home transactions from 2022 to 2025 than the five-year average before COVID-19. Yet demand is far from exhausted.
She added that nearly 52 million Americans are in their 30s, and many are entering homeownership-driven life stages. Even without major shifts in mortgage rates, family changes, job relocations and downsizing are expected to keep transactions on a steady uptick through 2026.
Regional gaps to hold strong
Inventory trends remain split. Kushi said that the Midwest and Northeast continue to see tight supply for both new and existing homes, keeping pricing relatively firm.
Meanwhile, many Southern and Western metros have more active inventory than before the pandemic. Markets such as Austin and Tampa saw strong price run-ups during the post-pandemic boom, followed by slower migration and affordability strains.
New-home construction in these regions has given buyers more choices and added to the cooldown.
Most analysts expect a “two-speed” market in 2026 — tight conditions in the Northeast and Midwest, accompanied by softer ones across parts of the South and West. And rising insurance costs may add further pressure in some coastal areas.
Indicators of financial distress have risen from record lows but remain far below crisis levels.
Kushi said weak points appear mainly in areas with stretched affordability, higher insurance costs or slower job growth, along with households that carry thinner financial cushions.
“The labor market has cooled but not cracked, and homeowners still hold a very large equity cushion, so the risk remains contained,” Kushi said.
“In 2026, the strain should be localized. Prices are slumping in some Sun Belt and Western metros that surged during the boom, and recent buyers with small down payments are more exposed if prices slip. We will watch the labor market closely, but the base case is gradual normalization, rather than a broad wave.”
Inventory and builders’ advantage
The supply shortage eased in 2025 as more homeowners accepted higher borrowing costs and builders completed more homes.
Kushi said life events — but not interest rate shifts alone — should encourage more owners to list in 2026. Lower rates would help at the margins, but the loosening of the “lock-in” effect is expected to be gradual.
Single-family construction has cooled, but builders still benefit from having move-in-ready homes and flexibility on incentives.
Many buyers remain wary of selling a home with a low mortgage rate and entering a more expensive market, keeping attention on new homes where sellers can offer buydowns or closing-cost help, Kushi added.
She said the new-home segment is positioned to retain its edge because supply is available and builders can adjust quickly to shifting demand.
“The housing market enters 2026 on steadier footing,” Kushi said. “We expect affordability to improve mainly because prices are cooling and paychecks are rising, rather than because financing suddenly gets cheap. Demand is powered by milestones rather than spreadsheets.”