A new Wells Fargo Economics report projects incremental gains in home sales and price appreciation, even as the national home price-to-income ratio remains well above pre-pandemic norms
The U.S. housing market is set for measured improvement in 2026, according to Wells Fargo Economics’ latest residential outlook, but the path back to pre-pandemic affordability conditions remains distant — and may not materialize within the next two years. The March 2026 report paints a picture of a market stabilizing at the margins while structural imbalances between supply and demand continue to weigh on buyers and renters alike.
The national home price-to-income ratio stood at approximately 5 in the fourth quarter of 2025, according to the report — meaningfully above the pre-pandemic average of roughly 4 and well outside historical norms. The annual mortgage payment share of median income was running at 42 percent, far above the 30 percent threshold generally regarded as affordable for the typical homebuyer. Wells Fargo economists noted that while affordability has improved around the edges, conditions “are far from favorable.”
Mortgage rates have fallen roughly 100 basis points over the past year. According to Freddie Mac, the average 30-year fixed rate averaged 5.98 percent during the fourth week of February 2026, compared to 7.04 percent in January 2025. The spread between the 30-year mortgage rate and the 10-year Treasury yield has also narrowed, receding to approximately 190 basis points as of late February — close to long-term historical averages and down sharply from a peak of nearly 320 basis points in October 2022. Despite those gains, Wells Fargo does not anticipate significant further relief. The report forecasts quarterly average 30-year fixed rates hovering between 6.1 percent and 6.2 percent over the next two years, as persistent inflation and fiscal pressures keep a floor under borrowing costs.
Home Sales Remain Depressed, With Signs of Stabilization
Existing home sales have averaged a 4 million-unit annualized pace over the three months ending January 2026 — about 37 percent below the cyclical peak of 6.5 million units in late 2022 and 23 percent below 2019’s pre-pandemic average of 5.3 million units. Pending home sales hit their lowest recorded level since the index’s 2001 inception in January, a development the report attributed partly to severe winter weather but also to the ongoing drag of constrained affordability.
Despite the headline weakness, Wells Fargo sees a gradual lift ahead. Mortgage applications for purchase trended higher over much of the past year before dipping in February, and resales increased in three of the final four months of 2025.
“Marginally improved affordability conditions and slightly better inventory availability will likely generate a modest lift to existing home sales,” the report stated.
Meanwhile, home price growth remains subdued on balance. The S&P Cotality Case-Shiller National Home Price Index rose just 1.3 percent year-over-year in December 2025, though the index posted gains in each of the last five months of the year. Wells Fargo forecasts median existing single-family prices to rise 3.4 percent in 2026. Regional divergence is pronounced: price appreciation is accelerating in supply-constrained markets like Chicago, New York City, and Cleveland, while Tampa, Denver, and Phoenix have registered year-over-year declines. As of December, 108 metro areas had seen annual home price declines — more than 25 percent of the markets tracked by Cotality — the broadest incidence of price declines since July 2012.
Inventory and New Construction
Resale inventory remains historically thin, with 1.11 million single-family homes available in January 2026, still 10.5 percent below January 2020’s pre-pandemic level of 1.24 million. Year-over-year inventory growth, while positive at 7.8 percent, is slowing significantly from the 15.7 percent annual rate recorded a year earlier. The “lock-in effect” — the disincentive to sell when outstanding mortgage rates remain roughly two percentage points below prevailing market rates — continues to suppress listing activity, though the gap is gradually closing.
New home construction is pulling back. Single-family permits fell 7.6 percent in 2025 from the prior year as builders scaled down production in response to elevated inventory and sluggish demand. The National Association of Home Builders’ Housing Market Index declined for two consecutive months through February 2026, reversing a three-month streak of gains, with deteriorating buyer traffic and softening sales expectations cited as key drivers.
New home sales, however, show some resilience. Sales reached a 745,000-unit pace in December 2025, a 3.8 percent year-over-year gain, aided by builder incentive programs that remained prevalent — nearly two-thirds of builders deployed price cuts or mortgage rate buy-downs in February, the seventh consecutive month at or above that threshold.
Multifamily and Policy Outlook
On the policy front, the Trump administration has directed the government-sponsored enterprises to purchase $200 billion in mortgage bonds to tighten spreads and lower borrowing costs. The administration has also signaled forthcoming action targeting institutional home purchases, defining “institutional” buyers as firms owning 100 or more properties — a segment that accounted for 5.4 percent of total home sales in late 2025.
Multifamily construction, meanwhile, is expected to transition toward expansion. Wells Fargo anticipates that as the post-pandemic supply wave dissipates and rental demand firms — supported by persistently strained homeownership affordability — lower financing costs and improved capital access will drive a stronger pace of new apartment development through 2026 and beyond.
