Heading into 2026, the consensus of expert observers is for a year of market stability and modest growth nationally and locally. Although affordability continues to be a major challenge everywhere, gradually declining mortgage rates and expanding home inventory are aligning in favor of buyers while maintaining reasonable price appreciation for homeowners.
After a surprisingly buoyant early summer, the Sedona housing market dipped back into the familiar pattern of sluggishness that we’ve seen for the past three years. By late fall, sales figures were pretty much what they were in autumn 2024. So too were home prices, thanks to inventory returning to Pre-Pandemic levels and buyers being few and far between. The Altos Market Activity Index in late fall stood at 32 – a slow market evenly balanced between buyers and sellers.
Should we expect 2026 to be any different?
The National Association of Realtors thinks so. They predict existing home sales rising by 13 percent. That anticipates dropping mortgage rates and rising housing inventory tapping into the pent-up demand of buyers who have been waiting in the wings for market conditions and affordability to move more decidedly in their favor. At the same time, though, NAR projects that the median recorded selling price of homes will rise approximately 4 percent in 2026. Fannie Mae’s consensus among housing experts forecasts national home price growth of 3.6 percent.
Mortgage rates are expected to decline modestly. Fannie Mae forecasts the 30-year fixed rate to go below 6.2 percent by the end of 2026. That seems exceedingly conservative; rates have already done that this fall.
The driver of 30-year mortgage rates is the 10-year U.S. Treasury yield. Mortgage-backed securities compete with Treasury bonds for investor dollars, so when Treasury yields rise or fall, mortgage rates typically follow. In recent years, the typical spread between the 10-year Treasury and mortgage rates has been roughly 2 percentage points.
In October, T-Bill yields slid to 4 percent and below. Consequently, we’ve seen 30-year fixed mortgage rates just above 6 percent, tantalizingly close to dipping into the upper 5 percent range.
The gradual drop in US Treasury yields has, indirectly, been helped by two Fed Rate cuts this fall and one on the way in December – with, presumably, more to come in 2026. The Treasury market, however, reacts not just to Fed decisions, but to inflation expectations, economic growth projections, and global market sentiment and politics – all factors that can move independently of Fed policy.
I suspect that mortgage rates dropping into the 5 percent range would create a psychological breakthrough for buyers needing a sign to jump back into the real estate market. In any case, the stars do seem to be aligned for a considerably more productive market for both buyers and sellers in 2026.
