US housing set for modest rebound in 2026 as mortgage rates climb to 6.5%

Why the real estate USA story in 2026 is worth a second look

The US housing market is preparing for a measured recovery in 2026 even as borrowing costs rise. Our analysis of Capital Economics’ recent forecast shows mortgage rates are expected to climb back to 6.5% in the second half of 2025 and remain near that level into 2027. That is the headline risk and the reason buyers and investors need to adjust expectations: higher financing costs will cap upside, but fundamentals point to a clearer improvement in sales and prices next year.

In plain terms, the picture is: sales pick up, prices rebound modestly, and mortgage affordability stays strained. For anyone tracking property and real estate USA, the trade-offs are immediate — a market that is not collapsing, but is not roaring either.

What Capital Economics is forecasting for 2026

Capital Economics lays out a sober, number-driven forecast that matters because it links macro policy to housing outcomes.

• Mortgage rates: projected to rise to 6.5% in H2 2025 and stay at that level through 2027.
• Existing-home sales: expected to average 4.4 million annualised in 2026, up from 4.1 million in 2025.
• New-home sales: forecast to improve to about 700,000 annualised in 2026.
• House prices: after near-stagnation in 2025, prices are expected to rise by 4% in 2026.

Capital Economics also makes the policy point that the proposals from the Trump administration aimed at improving affordability will have a limited effect unless mortgage rates fall substantially. The firm’s macro view — a relatively positive real economy combined with a hawkish Federal Reserve stance — is the basis for its higher-rate projection.

Why mortgage rates are the dominant variable

Mortgage rates are the economic lever that most directly affects buyer capacity. When fixed mortgage rates are near 6.5%, monthly payments for a typical loan increase materially versus rates seen earlier in the cycle. That alters the pool of qualified buyers and shifts the mix of transactions.

From an investor standpoint, the interest rate move changes both yield calculations and the relative attractiveness of housing compared with other assets. For owner-occupiers the math is blunt: higher rates reduce affordability and extend the time needed to accumulate a down payment relative to wage growth.

Key mechanics to watch:

• Lenders tighten credit boxes when rates rise, which reduces mortgage availability for marginal borrowers.
• Buyers facing higher monthly costs often trade down on price, location, or property type.
• Sellers who locked in low rates may stay put, reducing inventory in key price tiers.

Those dynamics are consistent with Capital Economics’ view that sales will increase a bit in 2026 but that price growth will be moderate rather than sharp.

How these projections translate into market activity

The numbers suggest a market that is improving from a subdued 2025 rather than launching into a boom. Here is what those statistics mean in practice:

• Existing-home sales averaging 4.4m: This implies more transactions, but not a return to the 2000s peak. Demand is recovering as some buyers respond to small improvements in affordability seen late in 2024 and early 2025.
• New-home sales ~700k: Builders will see slightly higher demand, which could support construction activity without creating a surge in supply.
• House prices +4% in 2026: Price growth should be broad-based but modest. Expect stronger price pressure in markets with tight supply and high job growth; weaker pressure in markets where inventory and new supply increase.

For agents and developers, the message is manage expectations. You can sell more homes in 2026 than you did in 2025, but you should not count on double-digit appreciation.

Implications for buyers, sellers and investors

This is where experience matters: raw forecasts are useful, but actionable decisions require nuance.

For buyers:

• If you plan to buy in 2026, budget around 6.5% mortgage rates for planning purposes. That affects how much home you can afford and the monthly cash flow you need.
• Consider adjustable-rate and shorter-term fixed products only if you understand refinancing risk and have a plan. With the Fed still hawkish in this forecast, refinancing to a much lower rate may not be likely in the near term.
• Focus on affordability by price tier. Value tends to be found in mid-market suburban locations where supply is moderate and job access is decent.

For sellers:

• Inventory dynamics may work in your favour if many would-be sellers keep low-rate mortgages, lowering listed supply in selective markets. That can support pricing discipline even when rates are elevated.
• Price competitively. The market is sensitive to overpricing when buyer budgets are squeezed by higher rates.

For investors and landlords:

• Higher mortgage rates compress cap rates for leveraged purchases, so expect lower leveraged returns unless rents rise or down payment equity is substantial.
• Short-term rental and single-family rental strategies can still work in markets with constrained supply and strong job gains.
• Look for yield opportunities in multifamily and select sunbelt metros where rent growth has been resilient.

What Trump administration housing proposals mean (and where they fall short)

Capital Economics assesses that policy proposals aimed at improving housing affordability will not move the needle materially without a sustained decline in mortgage rates. That conclusion is important and deserves unpacking.

What policy can do:

• Tax or zoning changes can ease supply constraints in some jurisdictions, which over many years can reduce price pressure.
• Targeted subsidies or down-payment assistance can help specific buyer groups.

Where policy hits limits:

• Housing affordability is sensitive to financing costs.