As 2026 starts, shifts are appearing in the U.S. housing market. Mortgage rates are lower than they were a year ago. Home values have dropped in some regions, sellers are cutting asking prices, and properties are taking more time to sell.
The Realtor.com December 2025 Housing Market Trends Report notes the market has become more balanced compared to last year. Active listings rose 12.1% from December 2024. Monthly listings fell, which is typical in winter, but the yearly inventory gain means buyers have more choices.
In December, 12.9% of homes nationally had price reductions. The Northeast saw the fewest cuts, while the South had the most. Homes stayed on the market a median of 73 days, four days longer than last year and nine more than November.
Freddie Mac reports the highest mortgage rate in 2025 was 7.04%. Rates have recently been in the low-6% range, with the average 30-year fixed rate at 6.16%. The Federal Reserve cut the federal funds rate on Dec. 10, but historically such moves do not directly lower home loan rates. Mortgage rates could fall if tariffs and political factors reduce the 10-year Treasury yield, which they track closely.
Zillow research indicates 45% of first-time buyers who compared multiple lenders secured a better rate. Over half of borrowers get preapproval from only one lender, limiting bargaining power. A larger down payment can improve mortgage rates, and some buyers obtain below-market rates through seller or builder negotiations.
New home construction faces challenges. Builders are cautious due to tariff impacts and rising material costs. National Association of Home Builders Chief Economist Robert Dietz stated, "After a decline for single-family housing starts in 2025, NAHB is forecasting a slight gain in 2026 as builders continue to report future sales conditions in marginally positive territory." He cited a weaker labor market and consumer financial pressure as factors for weak construction sales.
Zillow predicts the slowest year for single-family construction since 2019, citing large existing and upcoming inventories. However, slightly lower mortgage rates and builder incentives may boost activity next year. The NAHB reported 41% of builders cut prices in November, a post-COVID record high.
Personal factors heavily influence whether it is a good time to buy. Homeownership involves long-term costs like down payments, closing fees, moving expenses, property taxes, and potential selling costs. Job stability, location plans, credit scores, debt-to-income ratios, and savings are key considerations.
For conventional mortgages, a FICO Score of 620 or better is typically required. FHA loans may allow scores as low as 580 with 3.5% down. VA loans for qualified military members and veterans have no official minimum, though some lenders require 620. Higher scores generally yield better loan terms and lower rates. The median credit score for a new mortgage in Q2 2024 was 772, according to the New York Federal Reserve.
Lenders assess debt-to-income ratio, with Fannie Mae preferring a maximum of 36% of stable monthly income, though exceptions allow up to 50%. Monthly debts like mortgage or rent, car payments, student loans, and credit card minimums are included; utilities, subscriptions, and groceries are not.
Savings should cover emergencies and down payments. Conventional loans for first-time buyers require at least 3% down, with 20% ideal to avoid private mortgage insurance. VA or USDA loans offer zero-down options for eligible borrowers. Realtor.com reports the median down payment in Q4 2024 was 14.4%.
Zillow notes first-time buyers are more likely to contact at least three lenders and three real estate agents than repeat buyers. Shopping for rates and lenders is advised to secure favorable loan offers.