US Housing Market's Great Divide: Where Prices Will Rise and Fall in 2026

By Amanda Clark

SANTA ANA, CA – January 07, 2026 – The American housing market is poised for another challenging year, with home price growth expected to slow to a crawl. A new forecast from Veros Real Estate Solutions (Veros®) projects a meager 1.3% average nationwide appreciation over the next twelve months, a stark deceleration that signals persistent affordability constraints and a market undergoing a fundamental shift.

While the headline number suggests a stagnant national picture, the Q4 2025 VeroFORECAST reveals a deeply fractured landscape. The data, which analyzes over 300 metropolitan areas, paints a tale of two Americas: one where relatively affordable cities in the Northeast and Midwest continue to see steady gains, and another where pandemic-era boomtowns in the Sunbelt are now facing price declines. For the millions of Americans hoping 2026 would finally offer a clear path to homeownership, the reality will likely be far more complicated, shaped by regional economic fortunes, stubborn mortgage rates, and the rising tide of hidden ownership costs.

A Tale of Two Markets: The Great Regional Divergence

The era of ubiquitous, double-digit price growth across the country is over. In its place is a bifurcated market where location is more critical than ever. The strongest-performing housing markets are now concentrated in regions that largely missed the most extreme price run-ups of the pandemic.

Leading the pack is Rockford, Illinois, projected to see home prices climb by 4.9% in 2026. Once named one of the nation's hottest markets due to intense buyer competition for a scant supply of homes, Rockford’s relative affordability continues to fuel demand. Similarly, cities across the Northeast are demonstrating remarkable resilience. Buffalo and Rochester in New York are forecast to appreciate by 4.4% and 3.6%, respectively, buoyed by factors like anticipated job growth that outpaces new housing construction. Connecticut also emerges as a pocket of strength, with Norwich, Hartford, New Haven, and Bridgeport all appearing in the top ten strongest markets, with projected gains between 3.8% and 4.4%.

In stark contrast, the Sunbelt cities that once sizzled are now cooling rapidly. These markets, which saw staggering price growth between 2020 and 2022, are now reckoning with the consequences of that boom. Austin, Texas, a tech hub that experienced a massive influx of residents and investment, is now firmly a buyer's market. After peaking in May 2022, Austin home prices have corrected by nearly 20%, and Veros projects a further decline of 2.6% in the coming year. A surge in housing inventory, driven by robust new construction and slowing demand, has given buyers the upper hand, with price reductions becoming commonplace.

Florida markets are facing a similar downturn. Cape Coral-Fort Myers, which saw home values soar over 60% during the pandemic, is now forecast to see the steepest decline in the nation at -2.7%. The market has shifted dramatically, with homes sitting for a median of 119 days and inventory levels far exceeding state and national averages. Other Florida metros, including Lakeland, Crestview, Naples, and Sarasota, are also projected to see prices fall as the combination of high mortgage rates and overinflated values weighs heavily on buyer demand.

Affordability Remains the Elephant in the Room

Underpinning the entire market dynamic is the persistent crisis of affordability. Even with price appreciation slowing to 1.3% nationally, the affordability gap that widened over the past several years remains a formidable barrier for many, particularly first-time homebuyers.

A major contributor is the mortgage rate environment. While rates are expected to ease slightly from 2025 highs, a consensus among economists suggests they will likely hover above 6% for much of 2026. Projections from institutions like S&P Global and Bankrate point to an average 30-year fixed rate between 5.7% and 6.1%, a far cry from the sub-3% rates that fueled the pandemic buying frenzy. While anticipated Federal Reserve rate cuts may offer some relief, their impact on long-term mortgage rates is not guaranteed to be proportional.

This elevated rate environment exacerbates the "lock-in effect." A large share of current homeowners is sitting on mortgages with rates of 4% or lower, creating a powerful disincentive to sell their homes and re-enter the market at a much higher borrowing cost. This reluctance keeps for-sale inventory constrained, preventing the kind of supply glut that would lead to widespread price drops but also limiting options for prospective buyers.

The forecast does offer one sliver of hope: wage growth is projected to outpace home price appreciation in 2026. However, this modest gain is unlikely to be enough to close the significant affordability gap accumulated over years of rapid price increases, meaning the path to purchasing a home will remain a steep climb.

Beyond the Mortgage: The Rising Tide of Hidden Ownership Costs

Adding another layer of pressure for homebuyers is the dramatic increase in the total cost of ownership, which extends far beyond the monthly mortgage payment. Rising insurance premiums, property taxes, and homeowners' association (HOA) fees are becoming increasingly critical factors in purchase decisions, particularly in the very markets now showing weakness.

Nowhere is this more evident than in Florida and other coastal regions. The Veros forecast explicitly identifies these rising costs as a key factor placing downward pressure on prices in Florida and Louisiana. In markets like Cape Coral, the cost of homeowners' insurance has skyrocketed, driven by increased climate-related risks. This has significantly inflated the monthly carrying cost of a home, sidelining buyers who might otherwise qualify based on the purchase price alone.

In Texas, another state with multiple markets on the weakest-performing list, high property taxes have long been a feature of homeownership. As home values swelled, so did tax assessments, and even with prices now correcting, the overall tax burden remains a significant financial consideration for any potential buyer.

This growing awareness of ancillary costs is reshaping buyer behavior. Shoppers are no longer just calculating their mortgage but are forced to budget for volatile and escalating expenses that can add hundreds or even thousands of dollars to their annual housing costs. This reality is contributing to the cooling demand in high-cost areas and reinforcing the appeal of more affordable markets in the Midwest and Northeast, where these additional costs are often more stable and predictable.