Pending Home Sales & Real Estate Dynamics Entering 2026

TL;DR: Pending-contract activity (the NAR Pending Home Sales Index) finished 2025 stronger than many expected — a signal that signed contracts are stabilizing even while affordability remains tight. Moderating mortgage rates, rising inventories in some markets, and slower home price appreciation point to a modest rebound in transactions in 2026, but regional contrasts, affordability constraints, and policy / climate risks leave outcomes uneven. Expect modestly higher sales, continued pressure on entry-level affordability, and meaningful spillovers to construction, local labor markets, and household spending.

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1) The signal: Pending Home Sales right now

The Pending Home Sales Index (PHSI) — a leading indicator based on signed contracts — is designed to point to actual closed existing-home sales one to two months ahead. The NAR scheduled its November 2025 PHSI release for December 29, 2025; market data reported the November reading around 76.3 (index units), up versus some prior months and consistent with a gradual recovery in contract activity late in 2025. This suggests contract signings had moved off the lows seen earlier in the rate-shock era.

Why this matters: because most pending contracts convert to closed sales, the PHSI is a practical short-run predictor for transaction volumes — and transactions are the channel through which housing affects employment, construction activity, and consumer spending.

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2) Principal drivers shaping the index going into 2026

Mortgage rates and financing costs. The 30-year fixed mortgage averaged ≈6.18% in late December 2025 — a notch down from summer 2025 peaks and a key reason contract activity has been able to firm. Even small moves in long-term rates change buyer purchasing power and refinance incentives. Expect rates to remain a core swing factor for contracts in early 2026.

Inventory and listings. After inventory shortages pushed prices earlier in the recovery, a gradual increase in listings in many metro areas has given buyers more choices. That raises the odds of more match-ups (signed contracts) but also moderates price growth.

Affordability / incomes. Affordability remains the constraint: house prices are still high relative to incomes in many markets, even if price growth slows. Forecasts expect modest home-price appreciation and somewhat faster income growth in 2026, which would slowly improve affordability but not restore it to pre-pandemic norms for many first-time buyers.

Regional & structural differences. Southern and Sunbelt metros — for example parts of Texas and Florida — continue to see different demand dynamics than slower-growth Northeast/Midwest markets. Climate risk, property taxes, and local regulation are increasingly part of the demand calculus.

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3) How PHSI movement spills over into the wider economy

1. Residential construction and starts. More pending sales → more closings in 1–2 months → greater demand for move-in repairs, remodeling, and, over the medium term, new construction. Residential construction is a major source of local jobs and materials demand; a modest uptick in sales therefore supports construction employment and output. Empirical research shows housing cycles generate sizable macro spillovers through investment and employment channels.

2. Labor market & services. Closings boost real-estate-adjacent employment (agents, title, movers, trades). Local economies that rely more on housing activity will see sharper second-round effects.

3. Household balance sheets & consumption. Sales and modest price gains allow some homeowners to extract equity (cash-out refinance or loans), supporting renovation and consumer spending; conversely, stagnant prices limit that channel.

4. Financial markets & credit conditions. A strengthening PHSI can lift mortgage origination volumes and securitization activity. But if rates rise again, volumes will quickly pull back — so lending flows are sensitive to both contracts and rate expectations.

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4) Outlook for 2026 — scenarios grounded in current projections

Base case (most likely):

• PHSI slowly drifts upward through 2026 as mortgage rates stay modestly lower than 2024–25 peaks and incomes creep up.
• Existing-home sales rise a few percent year-over-year nationally; price appreciation roughly flat to low single digits.
• Construction and remodeling pick up gradually, supporting local employment. This aligns with recent market outlooks that predict modest sales growth and slight improvement in affordability.

Upside (rate-friendly) case:

• If long-term rates fall substantially (below ~5.5% sustained), the PHSI could accelerate, producing a stronger sales rebound, a lift to housing starts, and more pronounced spillovers into retail and services.

Downside (affordability / policy / shock) case:

• If rates move back up or a shock (credit tightening, a major regional climate loss, or abrupt tax/insurance cost increases) hits affordability, the PHSI could stall or reverse — translating into weaker construction and local job growth and higher downward pressure on regional prices. Historical and cross-regional studies show housing shocks transmit unequally across areas.

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5) What buyers, sellers, investors, and policymakers should watch (and do)

Buyers

• Watch mortgage-rate path and local inventory. If rates stay ≈6% or drift lower, expect a more active seller market in affordable metros; but affordability still requires careful budgeting.
• Consider locking rate if you expect a near-term move to higher yields.

Sellers

• Increased listings in some markets mean pricing and staging matter more — be realistic about comps and days-on-market.
• Small, targeted renovations (energy upgrades, necessary systems) can shorten selling times in markets with more choice.

Investors / builders

• Focus on markets with positive population/income trends and improving affordability (Midwest smaller metros, some Sunbelt secondary cities).
• Expect steady demand for renovation and rental supply in 2026 even if for-sale transactions only rise modestly.

Policymakers

• Affordability is the long-run issue. Policy levers (zoning, supply incentives, insurance reforms, targeted subsidies) matter more for structural supply/demand balance than short-term rate moves.
• Monitor localized spillover risks (areas with highly leveraged builders or single-sector dependence).

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6) Key takeaways (quick bullets)

• The Pending Home Sales Index (PHSI) finished 2025 broadly stronger than mid-year lows, signaling modest transactional recovery into early 2026.
• Mortgage rates pulled back slightly late in 2025 (≈6.18% 30-yr average), a crucial support for contracting activity; rates will remain the single most important swing factor in 2026.
• Spillovers from a PHSI-led sales rebound include higher construction/remodeling activity, local job gains, and potential boosts to household spending — but effects will be uneven regionally.
• Structural affordability problems persist; even a modest sales rebound will not remove the need for supply-side solutions and targeted affordability policies.