Real Estate January 18, 2026

Market Overview

The U.S. residential real estate market appears to be entering a stabilization phase that may support the first full year of real home-sales growth since 2021, driven primarily by normalized mortgage spreads and steadier rates [1]. Mortgage-rate volatility has been a dominant constraint on transaction activity for the last two years; with spreads and quoted rates stabilizing, affordability improves modestly at the margin and buyer urgency—particularly among rate-sensitive segments—can return [1]. At the same time, persistent demand aspirations among younger cohorts add a structural underpinning to demand even if incomes lag, keeping absorption elevated for entry-level homes and rentals [8].

Key Developments

1) Mortgage environment: HousingWire reports that normalized mortgage spreads and steady rates are creating conditions likely to produce real home-sales growth for the first time since 2021 [1]. That suggests a move from a rate shock-driven slowdown toward a volume recovery, provided rates remain in a relatively narrow band and lenders continue to price competitively [1].

2) Policy that alters down-payment liquidity: A proposed policy to allow 401(k) withdrawals for home purchases would change the calculus for some buyers by providing an additional source of down-payment funds, but with significant long-term trade-offs and complexity around repayment and penalties [3]. The mechanics—penalty avoidance, tax implications, and restrictions on re-contribution—will determine how widely this option is used and whether it materially shifts demand among first-time buyers [3].

3) Demographics and buyer intent: Surveys show younger adults remain confident they will own homes despite broader economic concerns [8]. Aspirational demand among Gen Z and younger millennials implies continued interest in entry-level properties and multifamily rentals, even if conversion to actual purchases depends on credit access, savings, and rate trajectories [8].

Financial Impact

Transaction volume and prices: Stabilizing rates can increase buyer participation, supporting higher transaction volumes and exerting upward pressure on prices in markets with constrained supply [1]. Marginal buyers who were priced out at higher rates may re-enter the market, improving inventory turnover and brokerage fee flows. However, any pickup will be uneven: affordability remains tight in many metros, so sales gains are likely concentrated at the lower and middle tiers where younger buyers target properties [1][8].

Origination and lending risk: If policy eases access to retirement funds for down payments, originations could see a modest lift in the short term as some buyers bridge liquidity gaps [3]. But this raises credit quality and long-term household balance-sheet risk: tapping retirement savings reduces future financial resilience and could increase default vulnerability in a downturn, a risk lenders and servicers will need to monitor [3].

Rental market and construction: Continued strong homeownership intent among younger cohorts supports demand for entry-level homes and near-term rental absorption as purchase conversion timing lags; this underpins multifamily fundamentals in the near term and creates a window for build-to-rent strategies to capture delayed purchasers [8].

Market Outlook

Base case (6–12 months): If mortgage spreads remain normalized and headline rates hold, expect modest year-over-year growth in existing-home sales with price appreciation concentrated in constrained supply markets and lower-tier segments where younger buyers are active [1][8]. Originations will likely tick up, but refinancing activity will remain limited unless rates fall further.

Risks and downside: Policy enabling 401(k) withdrawals could transiently increase buyer demand but would amplify long-term financial fragility for households and potentially raise systemic risk if widely adopted—this would be a negative for credit performance and investor sentiment in housing credit markets [3]. Additionally, renewed rate volatility or an unexpected economic shock would quickly reverse the nascent recovery.

Implications for investors: Favor exposure to assets tied to improved turnover and rental fundamentals in entry-level segments (e.g., select regional MLS markets, workforce housing, build-to-rent platforms). Monitor policy developments around retirement withdrawals closely—both for origination volumes and credit-quality signaling—and track incoming data on purchase mortgage applications and Gen Z/millennial income trends to validate the demand story [1][3][8].