Real estate has always been one of those investment choices where timing seems to matter more than anything else. You probably know someone who bought at the perfect moment and watched their investment soar. Or maybe you know someone who mistimed it and struggled for years. Here’s the thing though.
We’re not in a typical market cycle right now, and that’s exactly what makes this moment so interesting. Several forces are colliding at once.
Mortgage Rates Are Finally Easing After a Long Wait
The 30-year fixed-rate mortgage averaged 6.06% as of January 15, 2026, down from last week when it averaged 6.16%. That’s a noticeable shift when you consider where we’ve been. A year ago at this time, the 30-year FRM averaged 7.04%. So yes, rates are dropping, and they’ve hit their lowest level in more than three years according to recent Freddie Mac data. Buyers are responding too. Weekly purchase applications and refinance activity have jumped, underscoring the benefits for both buyers and current owners.
Still, let’s be real. Even at roughly 6%, mortgage rates remain expensive compared to the rock-bottom pandemic levels that many people got locked into. Mortgage rates are forecast to end 2025 and 2026 at 6.4 percent and 5.9 percent, respectively, according to the September 2025 Economic and Housing Outlook from the Fannie Mae Economic and Strategic Research (ESR) Group. If you’re waiting for 3% loans to return, honestly, you might be waiting a very long time. The current environment is what we have to work with.
Home Prices Are Moderating, But Don’t Expect a Crash
Most housing economists are forecasting a modest 1% to 2% increase in home prices. Bright MLS is on the low end with a 0.9% price increase, while the NAR is on the high end with 4%. That’s a far cry from the double-digit spikes we saw during the pandemic frenzy. 2025 was another tough year for homebuyers, marked by record-high home prices and historically low home sales. However, in the fourth quarter, conditions began improving, with lower mortgage rates and slower home price growth.
The catch is that even modest growth still means prices are heading upward. Despite these challenges, the national median existing-home price increased by 6% from December 2023, reaching $404,400 in December 2024. But there’s a silver lining buried in these numbers. Real prices, which account for wage growth and inflation, might actually decline slightly in adjusted terms. The reason, Hale explains, is that incomes are expected to grow next year by 3.6%, while inflation is projected at around 3% – both higher than the anticipated rise in home prices. With more disposable income and slower price growth for homes compared to other goods and services, “those monthly payments will actually drop as we move into 2026,” she says.
What does that mean for you? Affordability is improving, not because homes are getting dramatically cheaper, but because your purchasing power is slowly catching up.
Housing Inventory Is Growing, Giving Buyers More Options
For years, the market suffered from a crippling shortage of available homes. That’s starting to change. October 2025 marked the 24th straight month of year-over-year inventory growth. Even better news: The number of homes on the market in October was 15% higher than a year earlier. The count of active property listings jumped 12.6% annually in November, according to the most recent data from Realtor.com. A typical day during the month yielded 1.07 million for-sale listings, down from 1.1 million in October but above 953,452 in November 2024. It marked the 25th straight month of annual growth.
Now, before you get too excited, it’s worth remembering that we’re still nowhere near pre-pandemic inventory levels. While inventory is increasing, it’s still nowhere close to pre-2020 levels. So you shouldn’t get your hopes up about seeing any kind of major price adjustment. But this is still a great sign because more inventory usually gives buyers more negotiating power and slows rapid price growth.
What’s driving this increase? Life changes are forcing more homeowners to list their properties despite the fact that many have low mortgage rates they don’t want to give up. The so-called lock-in effect is gradually fading as people need to move for jobs, family changes, or downsizing. An FHFA report concluded that the so-called rate lock-in effect prevented 1.72 million home sales between the second quarters of 2022 and 2024. Those barriers are starting to crack.
Commercial Real Estate Shows Signs of Recovery
If residential real estate isn’t your thing, commercial properties are showing some interesting momentum. The commercial real estate property markets have seemingly turned a corner on recent performance downturns. Globally, investment volume declines reduced for six consecutive quarters, and in the first quarter of 2025, notched the first year-over-year increase since mid-2022. Through late June, the one-year total return for the S&P Global property index (14.1%), a measure of the global investable universe of publicly traded property companies, outpaced both the S&P 500 (11.7%) and the S&P World equities index (13.8%). And for private real estate, following two years of negative results, total returns have been positive for three consecutive quarters.
CBRE anticipates that investment activity will increase by up to 10% in 2025, driven by greater confidence in the economy and improved rates of return on commercial properties. Alternative properties like data centers are especially hot right now. Through the end of 2024, active managers were most frequently reallocating funds toward the digital economy, including data centers and telecommunications, and health care sectors. In the 2025 commercial real estate outlook survey, digital economy properties were ranked second as the asset class with the greatest opportunity for investment and ownership through 2025.
Multifamily and industrial remain strong, retail is steady and office is bouncing back in some metropolitan areas. Office properties, which took a beating during the pandemic’s work-from-home shift, are actually showing improvement in certain markets like New York’s Midtown.
Rental Markets Are Cooling With Rising Vacancy Rates
If you’re considering rental properties as an investment strategy, there’s some nuance here. National vacancy rates in the third quarter 2025 were 7.1 percent for rental housing and 1.2 percent for homeowner housing. The rental vacancy rate was not statistically different from the rate in the third quarter 2024 (6.9 percent) and not statistically different from the rate in the second quarter 2025 (7.0 percent). That’s a slight uptick, suggesting more supply is hitting the market.
2024 saw over 600 thousand new multifamily units hit the market, the most new supply in a single year since 1986. Today, we’re past the peak of that supply wave, but multifamily construction remains elevated. 243 thousand multifamily units were completed in the first half of this year – that’s down 27 percent from the second half of 2024, but still 31 percent higher than the 10-year average for first half completions. More units mean landlords are facing more competition.
As a result of all this new inventory, more vacant units are sitting on the market, meaning that property owners face more competition for renters and have less pricing leverage. Our national vacancy index – which measures the average vacancy rate of stabilized properties in our marketplace – sits at 7.3 to close out 2025. December’s rent decline (-0.8 percent) was a bit steeper than last year’s (-0.6 percent), and so we observe a drop in year-over-year rent growth to -1.3 percent. Earlier in 2025, it appears that annual rent growth was on track to flip positive for the first time since mid-2023; however, that rebound stalled out and reversed course during a particularly slow summer season.
What does this mean if you’re thinking about becoming a landlord? You might not see the aggressive rent increases that were common just a few years ago. However, By late 2023, average monthly mortgage payments were about 38% higher than the average rent cost, making renting a more affordable option for many households. Additionally, a limited supply of available homes has made it challenging for buyers to find properties that meet their requirements. This shortage has prompted high-income individuals to favor renting over purchasing, as suitable homes are often scarce or priced at a premium. Rental demand isn’t disappearing.
Global Investment Is Rebounding Across Multiple Markets
The United States isn’t the only game in town. Global real estate investment is projected to grow by 27%, reaching $952 billion in 2025, after a challenging downturn. This recovery is driven by rate cuts, resilient markets, and institutional investors re-entering the field. That’s significant capital flowing back into property markets worldwide.
The U.S. real estate market size was estimated at USD 130.02 billion in 2024 and is expected to grow at a CAGR of 4.1% from 2025 to 2030. North America specifically is poised for strong performance. North America currently dominates the market in 2024, holding a significant market share of 33.4%.
Many central banks have begun cutting interest rates, while fundamentals and global growth are strengthening. At the same time, we’re seeing meaningful demographic shifts, along with the rise of AI and a continued global focus on decarbonization. We believe these forces could translate into investment opportunities in the year ahead – especially in the private markets. These are the kind of macro tailwinds that smart investors pay attention to. The conditions are aligning for sustained growth, even if it’s not the explosive kind.
What You Need to Consider Before Jumping In
The market looks better than it has in a while, but timing isn’t everything. Location still matters enormously. There are some markets where inventory is still tight, where home prices are still rising. In general, expect markets in the Northeast and the West Coast to have limited inventory and more buyer competition, leading to slightly higher prices. Meanwhile, markets in the Midwest and South will have a larger supply of homes for sale and lower price growth. Your experience will vary wildly depending on where you’re looking.
This housing deficit remains a major constraint on affordability. The only way to really solve the housing affordability challenge is to build our way out of it. We need more single-family homes, more multifamily homes and more homes for both sale and rent to meet the needs of a younger population. A major limitation on the supply side comes to zoning and land-use policies. For example, townhomes are one of the bright spots for affordability, but zoning laws often limit the density needed to build them. Structural issues remain that no amount of rate cutting can fix immediately.
Then there’s the question of your personal finances. Can you handle the down payment, closing costs, maintenance, property taxes, and insurance premiums that keep climbing? Prospective homebuyers need an additional $200,000 compared to a decade ago to close on a median-priced property. Furthermore, Hepp underscored the fact that 75% of the top 100 housing markets are still considered overvalued. While the surge in for-sale homes offers more options, the true cost of ownership – driven by higher mortgage payments, soaring property taxes, and insurance premiums – continues to push homeownership out of reach for many people. You need more than just optimism. You need solid financial footing.
Don’t forget about competition either. 30% of homes were purchased entirely with cash in 2025 – down from 31% last year but still well above pre-pandemic levels. All-cash sales generally follow the same trend as the rise and fall of mortgage rates: When rates move down, the percentage of all-cash sales moves down; when rates go up, all cash-sales go up. Luxury buyers and investors were much more likely to pay in cash, which helped them bypass interest rates altogether and secure a better deal. If you’re relying on financing, you might find yourself losing out to buyers who don’t need a mortgage.
The Verdict: A Window Is Opening, But It Won’t Last Forever
So The honest answer is that conditions are improving, but they’re not perfect. As the housing market enters 2026, leading economists point to a range of forces likely to shape the year ahead for buyers, sellers, investors and the real estate industry. While notable headwinds persist, they agree on one thing: The housing market is showing signs of a rebalance – and a rebound – in 2026.
For 2026, the main theme from real estate economists’ first batch of forecasts is that the housing market should continue to slowly improve for buyers and sellers – even with persistent economic uncertainty. Buyers are benefiting from more inventory and improved affordability, while sellers are seeing price stability and more consistent demand. Each group should have a bit more breathing room in 2026. That breathing room might be exactly what some investors have been waiting for.
If you’ve been sitting on the sidelines, this could be your moment, especially if you’re willing to do your homework. Research your local market thoroughly. Understand the specific dynamics at play in your area. Don’t rely on national trends alone. And perhaps most importantly, make sure your finances are in order before you even start looking.
The window for favorable conditions is opening, but windows don’t stay open forever. Market cycles turn. Interest rates can change direction unexpectedly. What looks like a good opportunity today might not be there in six months. It’s not about rushing in blindly, but it’s also not about waiting for some mythical perfect moment that may never arrive. So what’s your take? Are you ready to make your move, or do you think waiting a bit longer makes more sense? Tell us what you think.
