Fed’s January Decision Will Set the Tone for Housing in Early 2026

​​Three weeks into 2026 and we have an early reading on the full-year 2025 housing market and clues about the key trends that will affect 2026.

Thinking about next week’s Fed meeting and decision is a great lens through which to set the macroeconomic context this year. I expect the Fed to leave its policy rate unchanged, for two key reasons: the current position of the Fed rate, which is far closer to neutral after 175 basis points of cuts, and the trend of recent data. 

In short, inflation is not as bad as was once feared with key indicators holding roughly steady above the 2% target, but not worsening. 

In the labor market, data has been more mixed but relatively robust, especially compared with weaker expectations. While there has been a fair amount of public pressure on the Fed regarding its decision, I expect data to be the driver.

We’re in early 2026 but still seeing data from 2025 trickle in, and we got a key reading on the housing market. Namely, although existing home sales improved in December, the improvement wasn’t big enough to put the 2025 total ahead of 2024. In short, that means 2025 was the lowest tally for home sales in 30 years.

One notable trend at the year-end that could foreshadow what’s ahead for home sales comes from Realtor.com® year-end data showing that inventory improvement essentially stalled with year-over-year growth slowing and the trend relative to pre-pandemic norms stabilizing.

Newly listed homes declined in December which kept the housing market from continuing in a more buyer-friendly direction as sales improved. In fact, NAR showed that months of supply fell to 3.3 months, and even the seasonally adjusted figure dropped to 3.8 months which is back in seller’s-market territory. 

Fortunately, 2026 is off to a decent start. Weekly Realtor.com data show that active listings are up compared to a year ago, even though new listings have been more mixed. Asking prices are roughly flat so far, and the market is moving somewhat slower than at this time one year ago—both buyer-friendly signs.

In the big picture, mortgage-rate lock-in continues to slowly release its grip on the market with a key milestone reached in the most recent data: The share of homeowners with a mortgage rate at or above 6% now exceeds the share with a rate under 3%. Put simply, even though lock-in remains a factor, unlocked homeowners now outnumber those with the lowest pandemic-era mortgage rates.

Turning to the broader mortgage rate outlook, 2026 has had an eventful start. First, the administration announced $200 billion in mortgage-backed securities purchases has helped narrow the spread between Treasury yields and mortgage rates.

As a result, mortgage rates dropped to just above 6%. This week, geopolitical tensions pushed interest rates modestly higher, and mortgage rates followed suit. Even after this increase, mortgage rates remain near some of the lowest levels in more than three years, a buyer-friendly development that could improve selling attitudes as well.