CALCULATEDRISK
By Bill McBride
In Part 1: Current State of the Housing Market; Overview for mid-March 2026 I reviewed home inventory and sales. I noted that the key stories this year for the existing home market are that months-of-supply was mostly above pre-pandemic levels, while sales in 2025 were at the lowest level since 1995 (tying 2024). And sales to date in 2026 are below 2024 and 2025 levels!
That means prices are under pressure, especially in areas with high levels of inventory, although we will NOT see cascading price declines like during the housing bust, since there will not be a huge wave of distressed sales. This is because most homeowners have substantial equity and low mortgage rates.
In Part 2, I will look at house prices, mortgage rates, rents and more.
Lower mortgage rates led to a pickup in purchase mortgage applications recently, but that didn’t lead to a significant increase in sales, at least not yet. More recently, mortgage rates have moved up to 7 month highs.
The war is having a negative impact on housing. Mortgage rates are moving up and uncertainty has increased. Also, the stock market has declined about 4%, and if stocks decline 10% or more, the sell-off will have a negative wealth effect and impact home sales.
House Prices
The Case-Shiller National Index increased 1.3% year-over-year (YoY) in December and will likely be about the same or slightly lower year-over-year in the January report compared to December (based on other data).
The Composite 10 NSA was up 1.9% year-over-year. The Composite 20 NSA was up 1.4% year-over-year. The National index NSA was up 1.3% year-over-year.
The National index increased 0.42% month-over-month (MoM). This is the 5th consecutive month with a MoM increase seasonally adjusted that followed 5 consecutive months with a MoM decline.
The December Case-Shiller index was a 3-month average of closing prices in October, November and December. October closing prices include some contracts signed in August. So, not only is the year-over-year change trending down, but there is a significant lag to this data.
Let’s review some more timely house price data …
Other measures of house prices suggest prices will be about the same or slightly lower year-over-year in the January Case-Shiller index as in the December report. The NAR reported median prices were up 0.3% YoY in February, down from 0.4% YoY in January. (Note that median prices are impacted by the mix).
ICE reported prices were up 0.4% YoY in February. Freddie Mac reported house prices were up 0.4% YoY in January, down from up 0.8% YoY in December.
Here is a comparison of year-over-year change in the FMHPI, median house prices from the NAR, and the Case-Shiller National index.
This suggests the Case-Shiller index will likely be up about the same or slightly lower year-over-year in the January report compared to December.
In real terms, the Case-Shiller National index is down 2.2% from the peak in 2022, seasonally adjusted. It has now been over 43 months since the real peak in house prices. Typically, after a sharp increase in prices, it takes a number of years for real prices to reach new highs.
Both the real National index and the Comp-20 index increased in December.
30-Year Mortgage Rates at 7 Month High
The following graph from MortgageNewsDaily.com shows mortgage rates over the last year. 30-year mortgage rates were at 6.41% on March 13th.
Mortgage rates were low following the financial crisis through the early years of the pandemic. Now rates have returned to a new normal in 30-year mortgage rates in the 6% to 7% range. It is possible that 30-year fixed mortgage rates will move into the high 5% range, but it is unlikely – barring a recession or a crisis – that rates will fall much further.
A year ago, 30-year mortgage rates were at 6.78%, two years ago rates were at 6.84%, three years ago rates at 6.75%, four years ago at 4.41%, and five years ago at 3.32%.
It is financially very difficult for homeowners that bought or refinanced in 2020 and 2021 to move and give up their 3% mortgage rates. This is a key reason the “move-up market” has been moribund. However time and life changes are slowly leading to more listings and will likely lead to more sales activity.
Mortgage Purchase Applications Have Increased Year-over-year
From the MBA last week:
The seasonally adjusted Purchase Index increased 7.8 percent from one week earlier. The unadjusted Purchase Index increased 9.3 percent compared with the previous week and was 11 percent higher than the same week one year ago.
Here is a graph showing the MBA mortgage purchase index released last week. Purchase application activity is up from the lows in late October 2023 but near the lowest levels during the housing bust.
This is still low, but has been increasing, and suggests some pickup in sales.
And the next graph shows the refinance index since 1990. Refinance activity is still very low but picked up a little with lower mortgage rates.
Many of the homebuyers in the last few years have been able to refinance recently. The recent increase in mortgage rates will lead to fewer refinance applications.
Asking Rents Declined Year-over-year for Multi-family
Here is a graph of the year-over-year (YoY) change for these measures since January 2015.
The Zillow measure (single and multi-family) is up 1.9% YoY in January, down from 2.2% YoY in December, and down from a peak of 15.7% YoY in February 2022.
The ApartmentList measure is -1.5% YoY as of February, down from -1.4% in January, and down from a peak of 17.7% YoY December 2021.
Asking rents declined YoY for multi-family and with new supply coming on the market (although at a lower level than last year), we will likely see continued pressure on asking rents. It is possible that policy (less immigration, more deportations) could also put downward pressure on rents.
Delinquencies and Foreclosures Remain Low
This graph shows the nominal dollar value of Residential REO for FDIC insured institutions based on the Q4 FDIC Quarterly Banking Profile released in late February. Note: The FDIC reports the dollar value and not the total number of REOs.
The dollar value of 1-4 family residential Real Estate Owned (REOs, foreclosure houses) was up 26% YOY from $790 million in Q4 2024 to $998 million in Q4 2025. This is still historically very low, but increasing.
Fannie Mae reported the number of REOs decreased to 4,519 at the end of Q4 2025, up slightly from 4,496 at the end of the previous quarter, and down 23% year-over-year from 5,895 in Q4 2024. Here is a graph of Fannie Real Estate Owned (REO).
This is very low and well below the pre-pandemic levels. REOs are a lagging indicator. REOs increase when borrowers struggle financially and have little or no equity, so they can’t sell their homes – as happened after the housing bubble. That will not happen this time.