If you were hoping to see the housing market finally thaw this spring, the past few months may have left you disappointed.
Outside, all the important factors that affect affordability seem to coincide with the spring home buying season. The number of houses for sale has been steadily increasing. Home price growth slowed to just over 1% year-over-year, well below the historical rate of annual appreciation of 3% to 5%. More real estate agents have begun to lower prices and offer concessions such as purchase prices and seller credits. Wage growth was outpacing even inflation.
Most importantly, mortgage rates, which are up to 6.5% for most of 2024 and 2025, have fallen sharply, falling below 6% for the first time in nearly four years at the end of February. The so-called “locking effect” turned out to be easy.
“Fundamentals have been improving,” Odeta Kushi, deputy chief economist at First American, told Money via email. “We were expecting a stronger spring shopping season than 2025, but not a boom.”
Indeed, if we look at the latest home sales report from the National Association of Realtors, existing home sales are on track to end the year at 4.17 million – almost 1 million more than in 2025. However, given that last year was tied for the lowest sales volume since 1995, this year’s projected sales figure represents a gradual recovery rather than a rebound.
Where does that leave us? However, even though the market is in better shape today than it was last year, many prospective buyers still feel that home ownership is out of reach as we head into summer.
Why the 2026 housing market still faces major challenges
There are several factors that contribute to a slow recovery. One of the most important is the recent increase in mortgage rates.
Even an increase in the median rate can have an immediate impact on purchasing power, leading to higher mortgage payments and reduced overall affordability, especially for first-time homebuyers.
Since the end of February, mortgage rates have increased by about half a point. They are currently hovering around 6.5%. In practical terms, that higher rate translates to an increase of about $260 a month on a $450,000 mortgage – enough to make a potential buyer think twice.
“High prices create an additional barrier at a time when affordability is still stretched by historical standards,” Kushi said.
The increased interest rates also reinforce the sense of lock-in that many homeowners feel with very low mortgage rates. According to data from Realtor.com, nearly 70% of mortgage holders had an interest rate of less than 5% by the beginning of 2026. Replacing that lower-rated loan with one with a higher rate results in higher mortgage payments.
For example, a homeowner currently holding a 5% mortgage who sells their home and takes out a new $400,000 loan at 6.5% would increase their monthly payment by about $381 — an amount that would discourage a realtor from moving unless they had a pressing need to do so.
But prices alone are not enough to account for the slow recovery. Although the domestic price growth has declined over the past few years, rates remain significantly higher than their pre-pandemic levels. The median sales price of a single-family home in May was $434,300, according to the NAR — up nearly 57% from February 2020.
When high home prices combine with high interest rates, monthly payments go up and affordability goes down. Kushi’s latest analysis found that home buyers lost nearly $11,000 in buying power between February, when mortgage rates were about 6%, and April, when rates were about 6.3%. Prices have only gone up since then.
Home goods are growing, but not at the right price point
Another major factor that contributed to the relatively quiet spring shopping season was inventory.
In general, more homes on the market give buyers more options and help keep price growth faster, leading to higher sales. The decline in inflation seen over the past year is largely due to a strong increase in inventory.
Nadia Evangelou, chief economist at NAR, says that when you have improved affordability and more housing supply, it usually translates to more sales (when the market is healthy, that is). So far, however, the volume of housing sales has not matched expectations.
In 2026, it seems that the height of the inventory alone is not enough.
“The listing may be considered inventory, but if it’s priced above what buyers can afford, it doesn’t really help the market move,” Evangelou said.
A new NAR report points to the disparity between household incomes and listing prices: There simply aren’t enough affordable homes on the market for a large portion of the homebuying pool, especially first-time buyers.
According to Evangelou, consumers with incomes between $50,000 and $100,000 are the most affected by this lack of price regulation. For example, a family earning $75,000 would be able to afford a home of up to $261,000. In a healthy, balanced market, homes in this price range account for 44% of available properties. Today, that share has dropped to 23%, representing a gap of about 310,000 households.
Across all income levels, the market is about 1.9 million homes short of housing demand. This lack of inventory, Evangelou said, is why many potential buyers feel “stuck.”
What buyers should know about the second half of 2026
After spring, the busiest buying season is summer, which typically offers more listings and a slower pace of sales before the market slows down in fall and winter.
What happens in the next six months will depend on three major factors, according to Kushi: loan rates, the labor market (including income growth) and supply.
If mortgage rates remain high, there will be continued pressure to buy, leaving some buyers on the sidelines. Current prices are affected by conflicts in the Middle East, their impact on oil and other consumer goods, and inflation.
As long as the turmoil continues, prices will likely remain in their current range, possibly higher. Once the war is officially over, consumers can expect prices to quickly dip and stabilize. However, many experts say they believe mortgage rates will remain above 6% throughout the year and into 2027.
Job stability can help increase consumer demand, too. Prospective homeowners who have a stable job may feel more secure about their home purchase and their ability to make monthly payments than those who do not. A healthy labor market with strong wage growth and job benefits may draw many buyers back. To date, the labor market has remained strong; the unemployment rate remains steady at 4.3%.
The recent trend of rising inventory is expected to continue as more sellers list their homes. As more inventory becomes available, home price growth should slow as demand is met and competition diminishes. If wage growth continues to outpace price appreciation, as it did late last year, purchasing power will rise – even if mortgage rates remain high.
“Overall, we expect the demand for closures to continue to evolve gradually,” Kushi said. “But the speed of recovery will vary greatly across markets and will depend on the path of rates, labor market conditions and asset growth.”
