As 2025 comes to a close, it’s time to plan for 2026. But what will happen after a year of uncertainty, as the topics of housing affordability and elevated mortgage rates commanded headlines?
There’s a good possibility that fear of the future could continue to influence the housing and mortgage markets. In a recent webinar, the CEO of John Burns Research and Consulting in Irvine, California, pointed out the disparity between consumer confidence and consumer sentiment.
Burns noted that consumer confidence, which reflects how Americans feel about their finances and security today, is at its long-term average. But consumer sentiment – how people report feeling about the future – is at a 45-year low.
“People feel crappy about the future. It’s, ‘Hey, I’m doing fine, but am I going to get a 30-year mortgage? Am I going to make a big bet? Am I going to spend my cash? Maybe I need to hoard it if I don’t think the future’s that great,” Burns said.
Despite this disparity, Chief Economist Lawrence Yun at the National Association of Realtors predicts that existing-home sales will rise by about 14% in 2026.
At the Residential Economic Issues and Trends Forum at NAR NXT, The REALTOR Experience, in Houston, Yun said his predictions reflect easing mortgage rates, continued job gains, and improving market stability after several challenging years.
“Next year is really the year that we will see a measurable increase in sales,” Yun said. “Home prices nationwide are in no danger of declining.”
Yun forecasts home prices will increase by 4% next year, while mortgage rates are projected to decline modestly, averaging around 6% in 2026.
“As we go into next year, the mortgage rate will be a little bit better,” Yun said. “It’s not going to be a big decline, but it will be a modest decline that will improve affordability.”
What are other economists saying?
Economists at Realtor.com predict mortgage rates will average 6.3% next year. They expect home prices will rise by 2.2%.
“Existing-home sales should climb about 1.7% to 4.13 million, a small but meaningful gain from 2025’s near 30-year low. At the same time, for-sale inventory will continue to recover, up nearly 9% year over year,” a housing forecast by Danielle Hale, Sabrina Speianu, Jiayi Xu, Hannah Jones, Joel Berner, Jake Krimmel, and Anthony Smith, says.
“For homebuyers and sellers, the shift signals a more balanced market — one where price growth steadies, rate relief offers breathing room, and negotiating power tilts subtly toward buyers. Housing affordability improves as incomes outpace inflation, pushing the typical payment share of income below 30% for the first time since 2022.”
Selma Hepp, chief economist for Cotality, says the housing market is expected to enter a phase of recovery in 2026. Cotality, headquartered in Irvine, California, is a provider of advanced property and ownership information, analytics, and data-enabled services.
Hepp expects there will be a move away from the dramatic ups and downs and significant dislocations that ensued post-pandemic. These made it difficult to experience a steady improvement in the overall housing market, she wrote in a recent article.
“The 2026 outlook points toward a return to more typical market conditions, with mortgage rates expected to settle near 6%, home prices increasing gradually by about 2% to 4%, and improvements in both affordability and availability of homes for sale,” Hepp wrote.
“Even so, continuing hurdles like higher non-mortgage expenses, including surging insurance costs and rising property tax bills, limited affordability, and uneven regional trends will keep bifurcating the market and impact decisions of both buyers and sellers.”
What do lenders think?
During a recent podcast with the Mortgage Note’s Scott Kimbler, John Hummel, head of retail home lending at U.S. Bank, described the last five years as “a tale of two cities.”
“We had an extremely low-rate environment during that 2020 to 2022 time period, and now we’ve seen elevated rates ever since, with those continued challenges with the inventory supply,” Hummel said.
Shelly Kobb, head of correspondent, warehouse, and HFA lending at U.S. Bank, said that even though borrowing has become more difficult, it is still an environment buyers can navigate with the right guidance and understanding.
“I think that this is a little bit unique with the housing shortage supply, but I do see more houses on the market for longer. Prices in some areas are dropping,” Kobb said.
Kobb said since rates have remained elevated for three years, many buyers now understand this is the new normal and are going forward with purchasing a home because their lives have changed, and it is time for them to move.
When it comes to opportunities for lenders, Hummel said 2026 will likely be a predominantly heavy purchase market.
“If we do see a little drift down in rates, we could see some refinance activity because of all the originations that have occurred over the last year and a half that maybe are between 6% and 7%,” Hummel said.
People are also using home equity lines of credit and home equity loans to improve where they live if moving isn’t necessary. This is another opportunity for lenders.
“They’re tapping home equity now to do some renovations or remodel their existing home. It gives them an opportunity to continue to get more shelf life out of their existing home, versus maybe having to go into the purchase market and be challenged with both elevated pricing and rates,” Hummel said.
It is estimated that three-quarters of homeowners plan to remain in their current home for the next two years, as low interest rates on their current mortgage influence their decision to stay where they are.
Among this group, 43% want to enhance outdoor spaces, while 40% are focusing on initiatives designed to boost home equity, according to TD Bank’s HELOC Trend Watch, a nationwide survey of more than 2,000 homeowners who have purchased a home within the past 10 years using a mortgage loan.
Jon Giles, head of residential lending strategy and support at TD Bank, said during a recent interview with the Mortgage Note that with current mortgage rates above 6%, cash-out refinances are not advantageous, so people are going for a second lien product to protect their first lien when making home improvements.
“That’s why we’re seeing more energy, if you will, more attention, on the home equity product. It’s a way to improve a home while retaining that low-interest first mortgage,” Giles said.
What do housing markets look like throughout the country?
The most popular housing market on Zillow in 2025 was Rockford, Illinois. Midsize cities have gained traction nationwide, offering shoppers a sense of community and access to expanding job hubs.
The Midwest dominates the top 10, as shoppers favor affordable markets over costly coastal metros, according to Treh Manhertz, a senior economic research scientist at Zillow.
Regionally, markets in the Midwest and Northeast are resilient, while prices are dropping in the West and South. Tampa, Florida, reported an annual home price drop of 4.1% in September.
Florida is a state where prices surged during the pandemic and are now normalizing. In Cape Coral, where home price appreciation led the nation between January 2020 and July 2022, the housing market has been on a downturn since 2023.
In comparison, Zillow predicted Buffalo would be the country’s hottest housing market in 2024. In 2025, it was put at the top of Zillow’s list for a second time.
“Zillow selected Buffalo as its ‘hottest market’ for the second consecutive year, largely due to the city’s growing economy and relatively affordable housing,” Rick Sharga, president and CEO of CJ Patrick Company in Trabuco Canyon, California, said.
Zillow estimates that the average home in Buffalo is valued at $235,752. The average home value nationally is $359,241.
No matter what, technology will continue to be a hot topic in 2026.
Artificial intelligence was the focus of a panel discussion at the Mortgage Bankers Association’s Annual Convention and Expo in Las Vegas this October.
Bill Emerson, president of Rocket Companies and 2016 MBA Chairman, put the importance of lenders implementing AI bluntly.
“You have to take advantage of the opportunity as it exists, and you have to navigate the risks associated with it because if you don’t, it’s like the old saying, ‘You’re either at the table, or you are on the menu.’ If you’re not playing with it now, you’re definitely on the menu,” Emerson said.
“Everyone’s competitors are doing this. So standing still is falling behind,” John Hedlund, vice chairman of ICE Mortgage Technology and 2026 MBA vice chairman, added.
At Rocket Pro Experience in Detroit this September, company leaders introduced brokers to two technological advances designed for them, Rocket Pro Navigate and Rocket Pro Assist.
Rocket Pro Navigate allows brokers to use AI for sales coaching, drafting borrower emails, examining tax documents, and generating a list of refinance opportunities based on closed loan lists.
Rocket Pro Assist is an AI-powered support agent that brokers can use to answer questions, check statuses, view clearing conditions, search guidelines, summarize Pathfinder results, and access live help.
AI is also helping mortgage and real estate professionals engage with clients. Textdrip allows them to automate text campaigns using technology.
These texts can be personalized for different types of clients. Estimates are that productivity rises by 300% to 400% for professionals who use Textdrip, Founder and CEO Phil Portman said in a recent vodcast with The Mortgage Note.
“What you’ll find is, you’re working far fewer hours taking notes and corresponding, and trying to remember things, and instead you’re spending more time closing deals, and the increase in productivity we’re seeing from people is astronomical,” Portman said.
Sean Faries is the CEO of Land Gorilla, a construction loan management software company headquartered in San Luis Obispo, California. He said that construction loan administrators will see their roles dramatically transformed as AI fully automates repetitive, manual tasks.
“AI agents will handle the time-consuming work of reviewing lien waivers, validating insurance certificates, tracking document expiration dates, reviewing compliance with the covenants of the loan agreement, and reconciling draw requests against the approved budget of record. This will free administrators from tedious data entry and cross-referencing tasks and allow them to focus entirely on exception management and proactively addressing complex policy issues, borrower/contractor disputes that require human judgment, and growing customer relationships,” Faries said.
The CEO and founder of Clarifire in St. Petersburg, Florida, warns that many organizations will continue adopting AI faster than their ability to control it. Clarifire is a privately held, women-owned corporation that uses a Software-as-a-Service model to reduce manual processes and increase efficiencies.
“AI is accelerating knowledge and document work, but it can — and likely will — introduce new risks. For instance, many AI agents being deployed by servicers are siloed, which can worsen long standing visibility gaps. Real progress will come from workflow-driven governance that validates AI outputs and unifies that intelligence across an organization. As AI becomes more ubiquitous, servicers can’t afford to repeat past mistakes when it comes to applying new technologies to work that is critical to maintaining portfolio health and keeping people in their homes,” Jane Mason said.
A new executive order from the Trump administration aimed at curbing state-level regulation of AI was supported by the Mortgage Bankers Association and Community Home Lenders of America.
“We believe strongly that a unified federal approach is necessary to avoid a confusing patchwork of state laws and regulations that would stifle innovation and raise compliance and borrower costs,” MBA’s President and CEO Bob Broeksmit said.
Scott Olson, executive director for the Community Home Lenders of America, said individual mortgage banks are already gaining efficiencies through the use of AI.
