3 Alarming Predictions With The Housing Market On Pace For Its Worst Year Since 2011

• 2026 is on track to be the weakest year for home sales in more than a decade, Capital Economics says.
• Homebuying activity has slowed as mortgage-borrowing costs have surged.
• The research firm laid out its top predictions for rates, home prices, and sales in the coming years.

Brace for one of the worst years the US housing market has seen in over a decade.

That's according to Capital Economics, a macroeconomic research firm that says it expects a significant slowdown in the US housing sector that could last for several years.

This year, annual home sales could slump to around 4.7 million by 2026-end — the slowest pace of home sales since 2011, the firm wrote in its latest housing-market outlook.

After eking out a small recovery in 2025, homebuying activity has been subdued this year, largely due to a rebound in borrowing costs. Markets are growing more concerned about inflation and are anticipating higher interest rates from the Fed, a factor that has pushed up mortgage rates.

High mortgage rates have been a major constraint on the housing market, keeping many existing homeowners locked into mortgages financed at lower rates. Prospective buyers, meanwhile, have also been pushed to the sidelines.

"Strengthening economic growth will not provide much of a lift to the housing market, which we expect to remain in its structural malaise," the firm's economists wrote.

They laid out a complete forecast for the housing market through 2028. Here are three other alarming predictions economists see coming ahead:

1. Mortgage rates will remain above 6% for at least two more years

Mortgage rates will likely stay above the critical 6% mark — a key psychological threshold in the housing market, given that many existing homeowners are tied to mortgages financed at below 6%.

Home borrowing costs remained above 6% for much of the last five years, and have surged as markets have anticipated hotter inflation and higher interest rates in the aftermath of the Iran war.

The benchmark 10-year US Treasury yield, which influences borrowing costs across the economy, rose to 4.74% on Tuesday, its highest level in over a year. The average 30-year fixed rate, meanwhile, clocked in at 6.67% in the last week, according to Freddie Mac data.

Capital Economics said it expected the Fed to hike rates by 75 basis points by early 2027. The 30-year fixed rate mortgage will likely end this year at around 6.5% before cooling to around 6.25% by 2028, the economists added.

2. Home prices to see the slowest pace of growth in 15 years

Home prices are on track to remain flat this year, with an annual change of 0%, the firm said. That will mark the weakest pace of home price growth the housing market has seen in 15 years, Capital Economics said.

The firm said it was expecting pressure on home prices due to higher mortgage rates, which are expected to crimp housing demand.

The firm is forecasting a small 2.5% rebound in home prices in 2027, followed by a 4% increase in 2028. Still, the period is expected to reflect the weakest three-year period for home price growth since 2011, the firm said.

Home prices have been relatively flat so far this year, rising 1.1% year-over-year in May, according to the Case-Shiller US National Home Price Index.

Falling stock prices could also hurt the housing market

There's a chance home prices could see a steeper-than-expected drop, the firm said, pointing to its concurrent forecast that the S&P 500 is due for a 20% correction by late next year.

If stocks were to see a sharp decline, that could lower demand for housing and drag down home prices more than expected, economists said.

"However, the 2022 experience, when the S&P 500 fell by around 25%, shows that house prices can remain resilient during a major equity sell-off, particularly if the Fed were to respond by loosening policy," they added.

The firm added that the housing sector as a whole would likely avoid a more severe downturn. The conditions to sparking a steeper drop in prices will likely only be created if the US were to enter a recession, it said, adding that it expected the job market and the overall economy to remain resilient.