2025 proved to be a challenging year for the housing market.
Anticipated Fed rate cuts failed to materialize until the third quarter, and policy uncertainty kept many consumers on the sidelines, even as inventory levels improved. While existing home sales largely tracked 2024 levels, remaining near 30-year lows, new home sales slipped to a three-year low. By year-end, most builders were more than happy to bid adieu to 2025.
As we move into the spring selling season each year, we take stock of the key dynamics shaping the industry. For example, our top three things to watch last year were: the impact of the rental market on for-sale demand, incentive usage, and the sustainability of high-end market demand.
All three themes above proved to be top stories in 2025: conversions from renting to owning remained limited, incentives became both more widespread across communities and rose in value, and high-end buyers proved surprisingly sensitive to policy uncertainty.
As we look ahead to 2026, core metrics like home prices, listings, quick move-in supply, affordability, and sales will remain top of mind. Beyond those fundamentals, though, we are keeping a close eye on three broader forces that we believe will play an outsized role in shaping the housing market this year:
- Consumer confidence. The Liberation Day announcement and a slower labor market left many consumers reeling in 2025, with sentiment readings dipping below levels seen during the GFC. History shows, however, that consumers are fickle and sentiment can shift quickly, making early-2026 confidence trends especially important to track.
- The directional trend of mortgage rates. Mortgage rates remain notoriously difficult to forecast, with risks on both sides. If inflation reaccelerates, the Fed’s independence comes into question, or the U.S. is no longer viewed as a safe investment, rates could move higher.
- Federal policy changes. If the past year has taught us anything, it is the importance of closely monitoring federal policy developments. Early 2026 has already delivered meaningful signals, including federally directed bond purchases and a proposed ban on institutional investors.
The insights in this article were taken from a more in-depth research report published in Zonda’s National Outlook.
