The U.S. housing market is showing signs of improvement for buyers as mortgage rates drop and home price growth slows, though affordability challenges remain. Realtor.com senior economist Joel Berner told NBC News that while 2025 was a “balancing year,” 2026 looks more favorable for homebuyers.

This positive shift stems largely from a decline in mortgage rates and softening home price growth. The 30-year fixed-rate mortgage currently stands at 6.18%, down from a peak of 7% earlier this year, according to Freddie Mac. While rates remain above pandemic lows, Berner noted that the market is seeing a pickup in buyer activity.

Berner added that rates below 6% are possible, though buyers are unlikely to see the 3%–4% levels seen during the pandemic. Rates haven’t dipped below 6% since September 2022, highlighting the significance of this trend for potential homeowners.

Even with falling rates, affordability remains an issue for first-time buyers. Rising home prices have pushed the median age for first-time buyers to 40, an all-time high, according to a National Association of Realtors report. The NBC News Home Buyer Index shows conditions remain challenging despite recent easing.

Sales are beginning to increase, and home price growth is slowing. The S&P CoreLogic Case-Shiller U.S. National Home Price Index reported a 1.4% annual gain in October, nearly matching September, indicating stagnant growth across most regions.

Nicholas Godec, head of fixed income tradables and commodities at S&P Dow Jones Indices, explained that high borrowing costs have curbed demand enough to slow price momentum nationwide. Affordability pressure remains a key factor shaping the market.

Beyond rates and prices, economic uncertainty is affecting buyer confidence. Berner noted that a weak labor market or inflation spikes could deter buyers even if conditions in the housing market improve. “Confidence in personal finances is what ultimately drives purchasing decisions,” he said.

Despite these concerns, buyer activity is rising. November pending home sales increased 3.3% from October and 2.6% year over year, according to the National Association of Realtors Pending Home Sales Report, a strong indicator of renewed buyer momentum.

NAR chief economist Lawrence Yun emphasized that “homebuyer momentum is building,” marking the strongest performance after seasonal adjustments and the best in nearly three years. Over 20% of Realtors surveyed expect year-over-year growth in buyer traffic over the next quarter.

However, homebuilder confidence remains low despite a small uptick in December. Builders are facing high labor and material costs, forcing some to cut prices or offer incentives, according to the NAHB/Wells Fargo Housing Market Index. Berner noted that inventory is accumulating, reducing builders’ willingness to expand aggressively.

JPMorgan analysts forecast a need for 1.3 million new homes in 2026, but building activity may remain modest due to economic pressures and ongoing affordability challenges. While the market shows hope for buyers, structural constraints may limit how quickly improvements are felt.