Cautiously Optimistic on the Main Course for 2026… with a Side of Wage Garnishment

Looking ahead to 2026 for the housing market and its various subsectors, there are several reasons for optimism. We enter 2026 with mortgage rates at 6.2%, down 75 basis points from a year ago and near the lowest levels since 3Q22. Combined with home price growth that has lagged income growth over the last year – a trend we expect to continue – for-sale affordability is still stretched, but it is improving. Over the last 50 years, this type of affordability backdrop has supported above-average growth rates for home sales, unless the economy is in a recession. And with more housing turnover, even from depressed levels, typically comes increased spending on home improvement and housing-related goods like furniture and home furnishings.

In addition, government data on shelter inflation (accounting for ~45% of core CPI) has recently shown more tangible signs of deceleration. Our proprietary analyses of single-family and multi-family renewal and new-move-in rents provide a multi-month leading indicator to the government figures – with our data sending clear signals that further cooling of housing CPI is ahead. As the debate over inflation, Fed policy and potential rate cuts rages on, housing CPI could prove to be a very influential factor this year. Lastly, there remains an upshot from the Administration’s focus on housing affordability as we await President Trump’s planned announcement of “some of the most aggressive housing reform plans in American history.”

At the same time, we are mindful of the headwinds and risks percolating beneath the surface, particularly as pressure points build for consumers most likely to fall within the ever-important first-time homebuyer cadre. For example, consumer delinquency data from the New York Fed continues to show clear signs of stress – most notably among younger and lower-income consumers. Late-stage (90+ day) delinquency rates on both credit cards (12%) and auto loans (5%) are within spitting distance of the Great Financial Crisis highs. And although overall 30+ day mortgage delinquency rates are historically low at 4% (including just 1% in the late-stage bucket), FHA delinquency rates (with FHA accounting for ~15% of mortgage originations) have continued to rise the last two years, reaching 11% in 3Q25, about 200 basis points above the 50-year average.

On top of the burdens associated with auto, credit card and mortgage debt, student loans are increasingly ‘back in session’ after years of moratoria and forbearance – with reporting of delinquent federal student loans to the credit bureaus restarting early last year. While late-stage student loan delinquency rates according to the New York Fed have shot up to roughly 10% in recent quarters from effectively 0% during the COVID-era moratoria, this is slightly below the 2013-19 average of 11%. However, importantly, 7-8 million borrowers (~18% of the total) remain in forbearance via the government’s SAVE program, with the intention of eventually transitioning such non-paying borrowers to new income-driven repayment programs. While “not required to pay” is very different from being delinquent or unable to pay, even in a scenario where all student loan borrowers in forbearance became current payers, the newfound cash flow burden is a serious consideration. For example, data from the Education Data Initiative pegs the average monthly payment on student loans at just over $500. Eventual repayment requirements have clear potential to alter spending patterns, particularly discretionary dollars, from such consumers.

Along similar lines, the Department of Education recently confirmed it would begin sending wage garnishment notifications to about 1,000 federal student loan borrowers in default starting in January, with more expected in subsequent months. While this figure is inconsequential against the 42-43 million federal student loan borrowers outstanding, it is increasingly clear that the government will continue to skew toward enforcement of repayment and collection requirements – and away from the extreme leniency of the last Administration.

Back to where we started: while the environment is not without its risks, the overall backdrop for home sales growth entering 2026 is arguably more favorable than was the case in 2024 or 2025. We currently forecast 3-5% growth in new and existing home sales in 2026, with additional growth of 4-6% in 2027. While sales activity should improve, inventory is also relatively more plentiful than past years. We expect modest pressure on net pricing in the new home market to continue, partly tied to homebuilders’ ongoing usage of expensive mortgage rate buydown incentives, and a continued plateauing of prices in the existing home market – albeit with significant market-by-market differences around the country.

Considering the far-reaching importance of entry-level demand across the housing ecosystem, in conjunction with our new research efforts in 2025 on the Consumer sector, including initiations on several furniture and home furnishing stocks (with more to come) – a New Years’ resolution from Zelman is to devote additional resources to unique and proprietary research on “the housing consumer,” consumer credit, and consumer spending in 2026.

Wishing all our clients, housing industry partners, and the many Zelman Insights readers we have yet to meet a healthy and happy New Year!