Will lower rates and higher inventory spring homebuyers into action and spark building permits?

According to October 2025 residential construction data from the U.S. Census Bureau and U.S. Department of Housing and Urban Development, 1.386 million new homes were completed.^Footnote1

Our chart above illustrates changes in single-family home permits — the key indicator of coming construction activity — between October 2024 and October 2025. The national average had permits down 7%. Some metros like Boston (+9%), Kansas City (+12%) and Tampa (+4%) bested the national mean, while others like Las Vegas (-24%) and Phoenix (-23%) trailed further behind.

The supply of completed homes sitting on the market caused new construction starts to slow and even cease as builders waited for “sold” signs to go up.

With favorable rates, special buyer incentives on new construction and a large inventory to shop, the spring 2026 buying season looks encouraging for homebuyers.

On January 15, 2026, Freddie Mac’s Primary Mortgage Market Survey® (PMMS®) reported that the average 30-year fixed mortgage rate fell to 6.06%, a decline of 10 basis points from the prior week. One year earlier, the average rate was 7.04%, underscoring the improvement. On a 15-year fixed, the rate was 5.38%, down from 5.46% a week before. That was down from an average rate of 6.27% in 2024.^Footnote2 If the downward trend for rates continues in 2026, it will bode well for homebuyers.

President Trump’s January 8 announcement of a $200 billion mortgage-backed securities (MBS) buyback plan drew both support and skepticism. The administration stated the program aims to improve housing affordability, while critics argue the impact may be short-lived.^Footnote3

Analysts also noted similarities to the Federal Reserve’s aggressive MBS purchases during the COVID-19 pandemic. That period of quantitative easing contributed to historically low mortgage rates, which spurred sales. Later, rates created a “lock-in effect” as homeowners hesitated to sell and take on higher-rate mortgages as rates climbed back up, opting to delay purchasing or selling decisions.

As of mid-January, mortgage rates reached their lowest levels since 2022. Future movement will depend largely on Federal Reserve policy. Chair Jerome Powell’s term ends in May, and the Federal Open Market Committee will meet three more times beforehand. According to CME Group’s FedWatch tool, 32.5% of bond-market participants expect two rate cuts in 2026.^Footnote4

The National Association of Realtors® (NAR) reports that home inventory entering 2026 was 20% higher than the year before. The organization also forecasts modest 1% increases in both single-family housing starts and new home sales.^Footnote5 A notable shift in the market: In 2025, new homes were less expensive than existing homes—an unprecedented reversal.

Median prices (Q2 2025):

• New single-family home: $410,800
• Existing single-family home: $429,800

That $19,000 gap — the largest on record — contrasts sharply with the 2010–2019 period, when new construction averaged $66,000 more than existing homes. The trend flipped in Q2 and Q3 2024, and existing homes began to outprice new construction.^Footnote6

In a January 5 episode of NAR’s “Real Estate Today” podcast, Chief Economist Lawrence Yun projected a 14% increase in home sales for 2026, with home prices rising a modest 2% to 3%.^Footnote5 With wage growth expected to keep ahead of home prices and inflation, Yun said home buyers will have a little more purchasing power.

NAR identified the nation’s top 10 markets for first-time buyers, all with median listing prices below the $415,000 national median. The list is dominated by Northeast and Midwest markets, while no Western cities qualified for the second consecutive year.

All 10 ten cities had a median listing price below the $415,000 national median price.^Footnote7 Median income of the 25-to-34-year-old demographic and their share of income spent on their mortgage payment also factored in.

Most forecasts call for modest mortgage-rate declines in 2026. Bank of America’s Mortgage-Backed Securities (MBS) team suggested in late 2025 that rates in 2026 could fall toward 5%, though a more likely outcome is an average rate closer to 6.25% by year-end.

Encourage your clients to stay proactive: explore rate-lock options, evaluate budgets under varying rate scenarios, and consider refinancing if rates decline further. Understanding the forces behind rate movement can help reduce uncertainty and build trust.

Our goal is to help you guide clients confidently through market volatility and help them make well-informed decisions. With the right strategy, 2026 can be a year of opportunity.