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Housing Affordability May Improve Slightly by 2026, Says Mortgage Rate Forecast

  //house-home.news-articles.net/content/2025/12/2 .. lightly-by-2026-says-mortgage-rate-forecast.html
  Published in House and Home on Monday, December 22nd 2025 at 17:56 GMT by WGME

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Housing Affordability Could Make Small Improvements in 2026: What the Data Tell Us About Mortgage Rates and New‑Construction Home Sales

The housing market remains a central concern for the American economy, with home‑buyers, renters, and policymakers all grappling with rising prices, tightening credit, and a complex mix of supply constraints. In a recent article on the W&G News website, the writer turns a close‑eye on the next few years of the market, arguing that while the gains may be modest, there are realistic prospects for a small but meaningful lift in housing affordability by 2026. Below is a detailed, word‑for‑word summary of the article’s key findings, the evidence it draws on, and the broader policy context it situates itself in.

1. Mortgage Rates – The Biggest Driver of Affordability

At the core of the article’s narrative is the projected trajectory of mortgage rates. The piece notes that the current benchmark for the 30‑year fixed mortgage sits in the 6.5‑7.0 % range, a level that has been on the rise since the Federal Reserve began tightening policy to curb inflation.

“Analysts from the Mortgage Bankers Association (MBA) expect rates to ease to roughly 5.5 % by the second half of 2026.”

This expected decline, the article explains, would deliver a roughly 1 % improvement in the affordability index (a measure that compares median home prices with median household income). While not a dramatic swing, such a shift could translate into thousands of households being able to step into the market who previously found themselves priced out.

The MBA forecast is linked in the article for readers who wish to dive deeper into the underlying assumptions: the projected path of the federal funds rate, the pace of inflation, and the forecast for U.S. housing demand. A quick glance at the linked data reveals a scenario where the Fed lowers rates modestly in 2025, followed by a stabilization period in 2026 that allows mortgage rates to settle around the mid‑5 % level.

2. New‑Construction Home Sales – A Slow‑Start Recovery

While mortgage rates provide the necessary “leverage,” supply constraints continue to be a limiting factor. The article highlights that new‑construction sales have fallen sharply since 2020, with a 12 % year‑over‑year decline in the first quarter of 2023. The reasons are twofold:

1. Construction Costs – Lumber and steel prices spiked during the pandemic, and although they have moderated somewhat, the higher input costs have kept builder margins tight.
2. Financing Constraints – With higher mortgage rates, many builders see a decline in pre‑sale activity, making it harder to finance large projects.

Despite these challenges, the article notes a faint green in the data: a 2‑3 % uptick in new‑construction applications in the first half of 2024, suggesting that some builders are cautiously moving forward. However, the author stresses that even if rates dip to 5.5 %, construction activity may only begin to normalize by 2028, given the time it takes to secure permits and raise capital.

The article links to the U.S. Census Bureau’s monthly new‑home sales data for readers who want to see the raw numbers, and to the National Association of Home Builders (NAHB) for an industry perspective on upcoming projects.

3. The Housing Affordability Index – A Measure of Real Change

One of the most striking parts of the article is its discussion of the Housing Affordability Index (HAI), a composite metric that incorporates median home prices, median household income, and typical mortgage payments. According to the article, the current HAI sits at 48.5, meaning that a typical household would need to earn 48.5 % more to afford a median‑priced home on a typical mortgage.

“The index is projected to rise modestly to 50.7 by the end of 2026.”

While this would still keep affordability out of reach for many, the article frames the improvement as a necessary first step. It also acknowledges that the index does not capture all facets of affordability—particularly the rapid rise in rental costs relative to wages, a trend that is captured in a separate Rental Affordability Index (RAI).

For those who want a deeper dive into the methodology behind the index, the article includes a link to the U.S. Department of Housing and Urban Development’s (HUD) methodology page.

4. Policy Recommendations – Closing the Gap

The article’s author doesn’t merely point out the numbers; he also proposes a handful of policy levers that could accelerate affordability gains:

The article cites a recent Urban Institute report that quantified the impact of a hypothetical $15 B down‑payment assistance program, noting a potential increase of 100,000 new home purchases over five years.

5. Contextualizing the Forecast – Fed Policy and Inflation

To fully understand the forecasted decline in mortgage rates, the article spends a paragraph on the role of the Federal Reserve. The Fed’s current stance—tightening policy to combat an inflation rate that remains above its 2 % target—has kept the federal funds rate elevated. However, the article notes that a combination of lower commodity prices, better supply chain stability, and a gradual improvement in labor market conditions may push the Fed to taper the rate hikes in 2025, paving the way for mortgage rates to decline in 2026.

6. Key Takeaways for Home‑Buyers, Builders, and Policymakers

1. Mortgage rates are likely to ease to roughly 5.5 % by 2026. This would provide a modest boost to affordability, but only for those who can still afford a mortgage payment.
2. New‑construction sales remain sluggish and may not fully recover until 2028 unless builders can secure stable financing.
3. The Housing Affordability Index will improve slightly by the end of 2026, but will still signal a significant affordability gap.
4. Policy interventions—particularly down‑payment assistance and tax credits—are essential to bridge the affordability gap faster than market forces alone can achieve.

7. Where to Find More Information

• Mortgage Bankers Association (MBA) Mortgage Rate Forecast – Link in article
• U.S. Census Bureau New Home Sales Data – Link in article
• National Association of Home Builders (NAHB) Industry Report – Link in article
• U.S. Department of Housing and Urban Development (HUD) Affordability Index Methodology – Link in article
• Urban Institute Affordable Housing Report – Link in article

Conclusion

The article from W&G News provides a sober, data‑driven look at the near‑term prospects for housing affordability. While the forecast of mortgage rates easing to 5.5 % and a modest uptick in the affordability index are encouraging, the underlying supply constraints—particularly in new construction—remain a formidable hurdle. Policy measures that lower upfront costs and incentivize affordable housing will likely be the decisive factor in making homeownership a realistic goal for more Americans by 2026. For anyone navigating the complex maze of buying, selling, or building a home, staying informed on these trends is essential.