First American Financial Corp. ($FAF) revealed its 2026 housing market forecast, projecting a notable improvement in affordability as mortgage rates ease and wage gains outpace inflation. The First American 2026 housing market forecast surprised markets with its rosier outlook for buyers. What underlying trends fuel this shift, and can affordability really rebound as predicted?
First American Projects 7% Housing Affordability Gain by 2026
First American Financial Corp. ($FAF) announced that housing affordability is set to rise by 7% nationally in 2026, after a historic period of strain for buyers. According to the company’s November 2025 Housing Market Outlook, the median home price is expected to stabilize near $394,000, compared to $397,500 in July 2025 (National Association of Realtors data). The report also forecasts average 30-year fixed mortgage rates falling to 6.2% by late 2026, down from their 7.35% peak in October 2023 (Freddie Mac Primary Mortgage Market Survey). First American highlights that inflation-adjusted incomes have grown 4.1% year-over-year as of Q3 2025 (Bureau of Labor Statistics), supporting stronger buyer purchasing power.
Why Lower Mortgage Rates Could Shift Real Estate Market Dynamics
Falling mortgage rates are poised to rip through the real estate sector, restoring purchase power to would-be homeowners sidelined by high borrowing costs. The Mortgage Bankers Association reported a 22% decline in purchase mortgage applications year-over-year as of October 2025, underscoring the current affordability challenge. However, with the Federal Reserve signaling a pause on further monetary tightening, historic trends indicate that sustained rate drops have typically triggered a 10-15% recovery in home sales volumes during past soft landings (Federal Reserve Economic Data). Notably, housing inventory remains constrained—active listings were still 36% below pre-pandemic norms in September 2025 (Redfin), though First American anticipates gradual improvement as rates ease and more owners list.
How Investors Should Adjust Portfolios for the 2026 Housing Market Shift
For investors, First American’s bullish outlook highlights opportunities and risks across real estate-focused assets. REITs exposed to residential housing could benefit from renewed transaction volumes and healthier price growth, particularly mid-cap names like Invitation Homes ($INVH) and American Homes 4 Rent ($AMH). Meanwhile, construction materials stocks and homebuilders such as D.R. Horton ($DHI) may experience tailwinds if new-home sales accelerate. Short-term, the ongoing supply/demand imbalance could limit upside, especially as stock market analysis points to cyclical volatility in real estate equities through Q1 2026. Investors should monitor mortgage credit availability and wage data, while positioning portfolios to capture the potential rebound in investment strategy aligned with the evolving rate landscape and latest financial news.
What Experts Say About Housing Affordability Prospects Into 2026
Industry analysts observe that while First American’s 7% affordability improvement forecast is optimistic, the direction is supported by macroeconomic signals. Market consensus suggests a modest but steady cooling in price growth and gradual restoration of inventory as mortgage rates decline. According to economists at the Urban Institute and Freddie Mac (as of October 2025), real wage gains and the anticipated Federal Reserve rate cut cycle are key factors shaping the expected normalization of housing affordability throughout 2026.
First American 2026 Housing Market Forecast Sets New Tone for Buyers
First American 2026 housing market forecast signals a pivotal shift toward better affordability after years of strain, thanks to expected lower mortgage rates and improved wages. Investors and buyers should watch for policy moves and market catalysts in early 2026, as any derailment of rate declines could challenge this optimistic scenario. Proactive positioning in real estate, homebuilder stocks, and housing-linked assets will be essential to capitalize on the evolving landscape.
Tags: First American, FAF, housing market, real estate, mortgage rates
