Home purchases are expected to begin in 2026, with the President Donald Trump we promise to announce “the most aggressive housing reform in history” at the beginning of the new year.
The foreclosure crisis has hit the housing market hard for three straight years, pushing home sales to the lowest levels in three decades. The average first-time buyer is now 40 years old, a record high.
A new analysis from the Realtor.com® economic research team looks at what it would take to restore home affordability to 2019 levels, when mortgage payments were about 21% of median household income, compared to more than 30% today. The analysis finds that it will take:
- Mortgage rates are falling to 2.65%down from 6.15% currently, though
- Revenue increases by 56% to a median of $132,171, up from $84,763 currently, or
- Home prices drop by 35% to a median of $273,000, down from $418,000 last year.
None of these outcomes are possible or expected in 2026. But the statistics underscore the challenge of returning the housing market to the most affordable conditions of 2019, before the COVID-19 pandemic brings major disruption.
Of course, some combination of these three factors may also achieve the same effect on purchasing—although the combination needed to fix the problem of inability to purchase is also unlikely in the near term.
For example, if mortgage rates fall by 4%, while incomes rise by 10% and housing prices fall by 9%, mortgage payments will equal 21% of income. That scenario is unlikely, in part because rising incomes and falling prices could quickly push home prices higher.
On the other hand, if mortgage rates hold steady at 6%, and wages and home prices continue to grow at their 2025 pace, the market won’t return to pre-pandemic buying until 2047, 21 years from now.
“Taken together, the statistics suggest that today’s affordability issues are less about housing prices alone and more about the interaction between prices and higher borrowing costs,” said Realtor.com® chief economist. Hannah Jones.
Jones says that unless mortgage rates, incomes, or home prices change by large and unusual rates, “affordability is likely to remain historically problematic, reinforcing the lock-in effect on existing homeowners and keeping barriers to entry high for first-time buyers.”
In addition to mortgage payments, homebuyers must budget for taxes, insurance, and utilities, all of which have risen in recent years.
Adding those costs on top of the mortgage payment of 21% of income brings the total cost of home ownership to about 30% of income, which is the affordability threshold defined by the Department of Housing and Urban Development.
Accessibility gains actually expected by 2026
In fact, Realtor.com’s economic research team predicts that mortgage rates will increase by 6.3% this year, while household incomes will increase by 3.6% and home prices will increase by 2.2%.
Those measures would see mortgage payments slowly drop to about 29% of median income, which would mark the first move below 30% since 2022.
That would mark a modest improvement in affordability conditions. But the average buyer can still expect to budget more than 30% of their income for home ownership costs, after adding taxes, insurance, and utilities to their mortgage costs.
To deal with the problem of not being able to buy, Trump has focused on low mortgage rates. He recently admitted that he doesn’t want to let housing prices fall, lest existing homeowners lose equity.
A new analysis shows that in order to regain affordability levels in 2019 on mortgage-only rates, rates would have to fall to 2.65%.
That would match the all-time low in interest rates reached on January 7, 2021, when the federal funds rate was zero and 10-year Treasury notes paid 1% interest.
On the campaign trail in 2024, Trump repeatedly promised to return mortgage rates to 3% or lower. In fact, achieving lower prices may require a recession with significant job losses and rising unemployment.
That’s because mortgage rates, and other long-term interest rates, are set by the free market, and are not under the direct control of the president or the Federal Reserve.
Although the Fed is reducing its short-term interest rate, and Trump will soon appoint a new Fed chair who favors more tapering, the Fed’s policies tend to affect mortgage rates loosely and indirectly.
In theory, the Fed could lower mortgage rates by buying billions in mortgage-backed securities, but doing so outside of a time of economic crisis would be an unprecedented move.
“Any action directly on mortgage rates is outside the Federal Reserve’s dual mandate of price stability and full employment, so I wouldn’t expect the Fed to do this in 2026, even with a new seat,” said a senior economist at Realtor.com. Jake Krimmel. “Higher rates hurt the housing market, but that didn’t cause major problems worthy of Fed intervention.”
Krimmel also notes that if policymakers were able to force mortgage rates to extremely low levels, it would simply send home prices soaring again, similar to what happened during the pandemic crisis.
Ultimately, many economists believe that the solution to the affordability problem lies in increasing the supply of housing through more construction, especially in markets where purchasing power is tight.
“Conceptually, if the Fed suddenly forced mortgage rates to 3% overnight that would risk overheating the economy,” Krimmel said. “You don’t really solve the problem of insolvency by subsidizing demand with cheap artificial capital.”
