Home Sales Could Slide to 4.7M by 2026 — Capital Economics Warns

US real estate outlook: brace for a prolonged slowdown

The real estate USA market is heading into one of its weakest stretches in more than a decade, according to Capital Economics. The research firm expects annual home sales to slump to around 4.7 million by the end of 2026, the slowest pace since 2011. That forecast matters for buyers, sellers, landlords, and investors who must now price risk differently and rethink holding periods.

This is not a short blip. Capital Economics has published a multi-year forecast that shows mortgage rates staying elevated, home-price growth easing to near zero in 2024, and only modest recovery beyond 2026. Our analysis below breaks down what the forecast means for the US housing market, the drivers behind the slowdown, likely scenarios, and practical steps for real estate buyers and investors.

What Capital Economics is forecasting

Capital Economics lays out a clear, if gloomy, path for the US housing market through 2028. Key points from its outlook are:

• Annual home sales fall to about 4.7 million by end-2026, the weakest level since 2011.
• Mortgage rates remain above the psychological 6% threshold for at least two more years.
• The average 30-year fixed mortgage rate is expected to end this year around 6.5%, then cool to roughly 6.25% by 2028.
• Home prices show 0% growth in 2024, the slowest annual change in 15 years.
• A small rebound of 2.5% in 2027, followed by 4% in 2028, leaves the three-year price run as the weakest since 2011.
• The firm flags a possible 20% correction in the S&P 500 by late 2025 as a downside risk that would further weaken housing demand.
• Capital Economics does not see a US recession as its base case, and it expects the labour market and broader economy to remain relatively resilient.

Those numbers are exact from the firm’s release and echo recent market measures: the benchmark 10-year Treasury yield reached 4.74% in recent trading, and the last reported average 30-year fixed rate was 6.67% according to Freddie Mac data.

Why mortgage rates are the choke point for housing demand

Mortgage rates are the dominant force shaping near-term supply and demand. Capital Economics highlights three linked mechanisms:

• High rates reduce affordability. A 30-year mortgage at 6%+ raises monthly payments and cuts purchasing power for marginal buyers.
• Existing homeowners are locked in. A large share of homeowners currently have mortgages with rates below 6%, which discourages turnover and limits supply of desirable, move-in-ready homes.
• Market psychology matters. The 6% threshold is not just numerical; it is a behavioral barrier that influences both listing and buying decisions.

The technical plumbing behind this is the connection between Treasury yields, Fed policy expectations, and mortgage pricing. As markets priced in hotter inflation and a higher-for-longer Fed, the 10-year yield climbed and pushed mortgage rates higher. Capital Economics expects the Fed to raise its policy rate further (it forecasts 75 basis points of hikes by early 2027), an outlook that supports its forecast of mortgage rates staying elevated into 2028.

For buyers, that means affordability calculations must now use a higher baseline rate. For sellers, it means a pool of qualified buyers will remain thinner for longer, putting pressure on price negotiation and time on market.

Home prices: flat now, weak recovery later

A headline that will catch attention is Capital Economics’ call for 0% home-price growth in 2024. That is the weakest annual change in 15 years. The firm expects only modest price appreciation through 2027 and 2028, leaving the entire period as one of the weakest multi-year runs since 2011.

Why flat prices matter:

• Flat nominal prices plus rising interest rates lower effective affordability, suppressing volume further.
• Sellers who purchased during the pandemic price surge may have little nominal equity to trade down without paying a higher mortgage rate on their next home.
• Price stagnation limits the wealth-effect channel from housing, which in turn can damp consumption.

Capital Economics flags one conditional risk that could produce a sharper price drop: a roughly 20% fall in the S&P 500 by late 2025. A large equity correction would reduce consumer confidence and balance-sheet strength for potential buyers, particularly those who plan to tap stock gains for down payments or move-ups. The firm notes, however, that the 2022 experience—when the S&P dropped about 25%—showed house prices can remain resilient if the Fed loosens policy in response. This is a scenario risk rather than the baseline.

Market implications by stakeholder

The forecast is not uniform across geography or strategy. Here is how the slowdown filters through to different participants:

• Buyers and owner-occupiers

  • Current conditions expand negotiating leverage; sellers face a thinner pool of buyers and longer listing times.
  • Affordability is the constraint, not inventory in many markets, so down-payment-ready buyers with stable income are in the strongest position.
  • Locking a mortgage rate or using rate-protection tools is worth considering because rates are forecast to remain high for years.

• Sellers

  • Sellers who need to move may be forced to buy in a higher-rate market, eroding the benefit of any nominal price gains.
  • Pricing for speed matters; overpriced listings will see days on market rise.

• Investors and buy-to-let

  • Elevated mortgage rates compress yields for leveraged deals, making cash-heavy investors more competitive.
  • If price growth stalls while rents remain steady or rise, some markets may shift toward investor-friendly dynamics.
  • Watch markets with strong employment and supply constraints; those offer more downside protection.

• Homebuilders and new construction

  • Higher financing costs and weaker sales reduce the absorption rate for new homes, delaying starts and completions.
  • Regions with strong demographic demand may continue to see construction, but the national pace is likely to slow.

What this forecast means for strategy: practical investor and buyer guidance

We have fielded calls from readers and clients asking how to act. Here are pragmatic strategies rooted in the Capital Economics forecast.

For buyers who need a home

• Run affordability scenarios with a 6%+ 30-year rate baseline. Plan monthly budgets using 6.5% as a stress case given Capital Economics’ year-end projection.
• If you can, increase the down payment to reduce loan-to-value and monthly payment sensitivity to rates.
• Consider locking a mortgage rate if you are within a transaction window and rates are unfavorable. Speak with multiple lenders to compare points and lock terms.

For investors

• Prioritize cash-flow over price appreciation in underwriting.