March 31, 2026
The seasonally adjusted Case Shiller Index of Home Prices in 20 cities rose 0.2% in January. Prices have risen 1.2% in the past year.
The National Index which is a slightly broader measure of home price rose 0.2% in January. The year-over-year increase for this series is 0.9%. Home prices have basically flattened out.
Nicholas Godec, Head of Fixed Income Tradables & Commodities at S&P Dow Jones Indices said, “January’s results show home price gains continuing to cool, with the U.S. National Index up 0.9% year over year — down from 1.1% in the prior month,” negative in June 2025.” He added that, “Splitting the year into two halves sharpens the picture. The National Index rose 2.2% over the first six months of the period, then fell 1.3% over the most recent six — a swing that explains why annual gains have compressed to under 1% despite prices remaining historically elevated.”
To figure out what is likely to happen to home prices in 2026 we like to focus on housing affordability. There are three pieces to this equation. First, home prices should be essentially unchanged in the months ahead.
Second, mortgage rates are currently at 6.4% and should decline very slowly during 2026 to perhaps 6.1% by the end of that year.
Third, job gains and wage hikes are boosting consumer income. Real disposable income has climbed by 1.8% in the past year which is slower than its pace prior to the recession, but still growing.
The housing affordability index has been tracking at about 100 in recent months which means that potential buyers have just enough income to purchase a median-priced home. With income continuing to rise slowly and with mortgage rates and home prices declining slowly, a median income earning family should have 25-28% more income than required to purchase that median-priced home by the end of 2026 That should put some spark back into both new and existing home sales.
GDP grew 1.4% in the fourth quarter as a result of the prolonged government shutdown. It should rebound to perhaps 2.3% in the first quarer and grow by 2.5% in 2026. The ratio of consumer debt to income remains very low. The economy keeps cranking out jobs and wages keep rising slowly which should boost consumer income and spending. Mortgage rates are likely to decline slightly in the months ahead. Having said that, the results for the year depend highly upon the course of the war.
The shelter component of the CPI seems to closely track the Case Shiller change in home prices with a lag of about a year. As a result, the shelter component of the CPI which has increased 3.0% in the past year should slow further and increase 2.2% in 2026. That should allow the core CPI to resume its slowdown.
Stephen Slifer
NumberNomics
Charleston, SC
Steve – To what extent do the accelerating housing prices affect overall inflation?
Hi Frank,
Home prices are an asset and are treated as a capital investment. So we cannot look at housing prices and easily figure out what is happening to inflation. The CPI is a measure of inflation and what goes into the CPI is a measure of rent. In fact, rents are about 1/3 of the entire CPI. If rents are on the rise, that feeds directly into that measure of inflation.
The Census Bureau does a quarterly survey on homeownership. Amongst the many things they report are “Asking Rent — Vacant Rentals”. I cannot show you the chart using WordPress so I will send it your e-mail address. In the four-quarter period ending in the third quarter rents had risen 15.8%. But yet in the CPI rents have risen just 1.9%. But remember that in the CPI they knock on doors and ask people how much their rent is, and they survey the same unit every six months. So given that method of calculation rapid rent increases may take a while to get captured.
Bottom line is, rents are going up. But expect them to rise more slowly than the rapid increases in home prices. If they have risen 1.9% in the most recent 12-month period they should be higher — 2.5% perhaps — in 2021.
Hope this helps.
Steve