A New Era in Housing: Affordability Improves for the First Time in Years
According to Mike Simonsen, chief economist at Compass, a shift is expected in the housing market next year after years of unaffordable conditions.
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However, prices are now becoming more favorable for house hunters, a trend that should continue in 2026 and change the narrative in the housing market.
Improving Affordability and Sales
Simonsen says sales are starting to move higher, but prices are capped or maybe down, making it easier for buyers to afford homes.
Incomes are rising faster than prices, and so affordability improves for the first time in a bunch of years, according to Simonsen.
Moreover, his view echoes a recent report from Redfin, which also cited stronger income and weaker homes prices as it predicted a “Great Housing Reset” in 2026.
Shadow Demand and Listing Withdrawals
Simonsen said listing withdrawals tend to be owner-occupied homes, meaning they could be latent demand as well as supply.
In an environment where conditions improve a little bit, we actually estimate that that’s a representation of shadow demand—people that want to move, people that have delayed moves for maybe four years now, he added.
Consequently, there are about 150,000 such homeowners who could potentially enter the market.
Price Environment and Discounts
The price environment is already showing auspicious signs for prospective buyers, with more than half of U.S. homes having dropped in value over the last year.
Homebuyers are getting record-high discounts, with the typical individual discount remaining $10,000, but desperate sellers are increasingly offering multiple reductions.
As a result, the cumulative price cut in October hit $25,000, according to a report from Zillow.
Market Rebalancing and Patient Buyers
These discounts are bringing more listings in line with buyers’ budgets, and helping fuel the most active fall housing market in three years.
Patient buyers are reaping the rewards as the market continues to rebalance, with homeowners seeing their home values soar over the past several years.
Most homeowners have seen their home values soar over the past several years, which gives them the flexibility for a price cut or two while still walking away with a profit, said Zillow Senior Economist Kara Ng.
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