Why economists see the housing market flattening in 2026

Economists I polled this week had some interesting opinions about the housing market, the broader economy and President Donald Trump.

Mark Vitner, chief economist at Piedmont Crescent Capital, explained the heart of the flat housing market. “People don’t buy homes when they are worried about the job market,” he said. “When people land jobs, they buy things, clothes, cars and houses.

Vitner said it’s hard to get the market rolling with light job expansion.

Pointing to growth in artificial intelligence, defense/aerospace and pharma, Vitner told me that while those industries are capital intensive, they don’t generate a lot of jobs.

He thinks we’ll have two to three Fed rate cuts in 2026 but not until June. Mortgage rates will be down a little bit.

Raymond Sfeir, director at the Anderson Center for Economic Research at Chapman University, sees mortgage rates continuing to go down. He sees (Freddie Mac) mortgage rates at 5.5% by the end of the year.

With the inflation rate at 2-3% Sfeir predicts the Fed will drop short-term interest rates a maximum of two times, and like Vitner, not until the middle of the year.

“The unemployment rate (now at 4.4%) will go up to 4.7% easily,” said Sfeir. “Citing deportations and lower birth rates, the labor force won’t increase much.”

Sfeir predicts a slight price increase for housing, about 2-3% with more sales and listings in 2026.

Steven Thomas, chief economist at Reports on Housing, reminds us that the mortgage rate environment is better than it was a year ago. “It’s 150 days of rates below 6.5%,” said Thomas. “Payments are 10% better with rates 1% lower.”

Here are other housing metrics from Reports on Huusing:

Listings: 31,460 listings now compared with 28,912 a year ago in Southern California.

Orange County is 3,179 versus 2,821 last year; Los Angeles County is 11,610 versus 10,307; Riverside County is 7,952 versus 7,238, San Bernardino County is 4,812 versus 4,628; and San Diego County is 4,267 versus 3,918.

Expected market time: 119 this year versus 108 days one year ago for Southern California.

Orange County is 75 days vs 63 days last year, Los Angeles County is 119 days vs 108, Riverside County is 109 vs 107, San Bernardino County is the same at 120 days, San Diego County is 83 days vs 80 days one year ago.

Christopher Thornberg, economist and founding partner at Beacon Economics, sees a bubble in the economy with consumer spending at an all-time high. “We are living it up, and we don’t recognize it,” Thornberg said of the risks. “We have it, and we are pissed off in a time of abundance.”

He used Bitcoin as an example of our economy in a bubble. The cryptocurrency is down some 40% since its high.

“While the economy has good momentum with real estate better in ’26 than ’25, the broader picture is worrisome,” he said. “The federal government has made no effort to close the ($2 trillion) deficit.”

He explained the U.S. receives $1.3 trillion (annually) of inflow money or “hot money” from foreign investors. What happens when the bubble fades? Foreign money fades away. “The result is a lack of foreign support,” he said.

All of this will create slowdown momentum. When this happens, Thornberg expects mortgage rates to be at 7% by the end of year.

Mark Zandi, chief economist at Moody’s Analytics, sees mortgage rates staying around 6% this year with home prices being flat.

Like Thornberg, Zandi believes the equity and stock market are vulnerable to correction.

And like several others, Zandi sees a soft business market for builders, especially, as they need to work off excessive inventory.

Ed Coulson, director at the Center for Real Estate Research at UC Irvine, predicts Kevin Warsh, nominated to be the next Federal Reserve chairman, will lower short-term rates by one-half point. Warsh must be confirmed by the U.S. Senate before assuming the role in May.

As for the economy and mortgage rates, “Vibes are bad — all we read about are layoffs,” said Coulson. “As interest rates get lower housing prices will pick up.”

Here’s what some of the economists told me about Trump after the president spoke on housing affordability.

His quote: “I don’t want to drive housing prices down, I want to drive housing prices up for people that own their own homes,” the president said two weeks ago at a cabinet meeting.

“That was a surprise,” Coulson said.

Thornberg thinks it’s all a big bluff.

“Trump didn’t want Greenland. He merely wanted more military presence,” said Thornberg. “Between the tariff pullback, and the Greenland pullback he’s like a bull in a China shop.”

“It’s difficult to decipher Trump. He’s blustering,” said Vitner.

“Geopolitically, the most threatening (thing) is re-intensifying tariffs. The risk is if he goes too far he will cause more inflation,” said Zandi.

Freddie Mac rate updates

The 30-year fixed rate averaged 6.11%, 1 basis point higher than last week. The 15-year fixed rate averaged 5.5%, 1 basis point higher than last week.

The Mortgage Bankers Association reported an 8.9% mortgage application decrease compared with one week ago.

Bottom line: Assuming a borrower gets an average 30-year fixed rate on a conforming $832,750 loan, last year’s payment was $427 more than this week’s payment of $5,052.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.375%, a 15-year conventional at 4.99%, a 30-year conventional at 5.625%, a 15-year conventional high balance at 5.5% ($832,751 to $1,249,125 in LA and OC and $832,751 to $1,104,000 in San Diego), a 30-year high balance conventional at 5.99% and a jumbo 30-year-fixed at 5.875%.

Eye-catcher loan program of the week: A 30-year mortgage, fixed for the first five years at 5.25% with 30% down payment and 1 point cost.

Jeff Lazerson, president of Mortgage Grader, can be reached at 949-322-8640 or jlazerson@mortgagegrader.com.