Housing in 2026: Home Prices and Rates Are in Flux. Time to Make Your Move?

0:00Elizabeth Ayoola:So good, so good, so good. Spring styles are at Nordstrom Rack stores now, and they're up to 60 % off. Stock up and save on Rag & Bone, Madewell, Vince, All Saints, and more of your favorites. How did I not know Rack has Adidas? Why do we rack? For the hottest deals. Just so many good brands. Join the Nordiclub to unlock exclusive discounts, shop new arrivals first, and more. Plus, buy online and pick up at your favorite Rack store for free. Great brands, great prices. That's why you rack. This episode is brought to you by Indeed. Stop waiting around for the perfect candidate. Instead, use Indeed Sponsored Jobs to find the right people with the right skills fast.

0:40It's a simple way to make sure your listing is the first candidate C. According to Indeed data, Sponsored Jobs have four times more applicants than non-sponsored jobs. So go build your dream team today with Indeed. Get a$75 Sponsored Job Credit at Indeed.com slash podcast.

0:56Sean Pyles:Terms and conditions apply. It's 2026. Do you think you'll be exploring any changes in your housing situation? If so, this episode is for you.

1:12Sean Pyles:Welcome to NerdWallet's Smart Money Podcast, where you send us your money questions and we answer them with the help of our genius nerds. I'm Sean Piles. Later this episode, we'll be taking a look at some of the predictions for the housing market this year. But first, our weekly Money News Roundup, where we break down the latest in the world of finance to help you be smarter with your money. Our news colleague, Anna Hilhosky, is here with us. Happy New Year, Anna. Happy New Year, Sean. And I think it's pretty safe to say that we're all feeling reflective as the calendar turns over to 2026. So we're starting to think about what might be coming down the road in the now not-so-distant future.

1:46Sean Pyles:And the future is often shaped by the past. So I am hoping today that we can look briefly at some of the things that happened last year that may impact what we're going to see this year and get some context for all of it. And there's no better person to help us do that than NerdWallet's senior economist and friend of the show, Elizabeth Renter. Elizabeth, happy new year to you, and thanks for starting the year with us. Hey, thanks for having me, guys, and friend of the show. I really like that. I can't think of anywhere I'd rather be. That's exactly what you are. So first off, I'm hoping you can talk a little bit about what a standout moment in the economy last year was for you and what had the biggest economic ripple effects.

2:24So that's a really tough question because as we all know, 2025 was a crazy year when it came to impacts to the economy and potential impacts to the economy. But if I was to choose a single moment or event, it would sort of be the cluster that surrounded April and Liberation Day. So the announcement of the 10 % universal tariffs, the reciprocal tariffs, and everything that happened relatedly to that after the fact, right? Clawbacks of tariffs, changing policies. And the story is still unfolding, both how it impacts inflation and what the ultimate policies are going to be. Some of them are in the Supreme Court as we speak, those that were filed under the pretense of an economic emergency.

3:03So there's a lot going on with this topic, but it all started in April. What was the biggest one for you, Ana?

3:08Sean Pyles:Yeah, I mean, as you mentioned several times, tariffs. I think trade policy changes are most obvious and their effect on consumers, their effect on companies. You know, we saw a huge jump in business and consumer spending in the spring ahead of the tariffs going into effect. And now we're at a point where a lot of that inventory that was bought up in the spring is starting to wane. And we could end up seeing prices rise soon for all kinds of consumer goods. I also don't want to forget the effects of the government shutdown on federal workers and SNAP participants. It's not that far behind in my mind, not to mention how it impacted economic data collection and reports, as we saw and didn't see.

3:46Sean Pyles:And we could end up being headed for another at least partial shutdown at the end of this month. But was there one economic moment in 2025 where you can look back and say, that's when things really changed? Well, if you frame it by something that really changed in the year, I mean, again, there were multiple things, but it really felt like economic policy whiplash throughout the year. The one thing that stood out as far as change goes is when the Fed resumed cuts in September. So they held rates steady throughout the first half of the year. They were looking at the new administration coming in, the new potential policies and the impacts of those policies.

4:22And they thought holding steady was the way to go until September. That change, when they decided to cut again, really told me that they saw the risks to the labor market as rising relative to the risks to inflation. And that was significant.

4:36Sean Pyles:Yeah, let's dig in a little bit more about what happened with the labor market last year. It's not looking quite as tight as it once was. Yeah, just a few years ago, things were totally different. It was very dynamic. And when I say dynamic, I mean it was really good for workers, right? We called it the great reshuffling. shuffling. People were quitting their jobs and moving to greener pastures, and that couldn't be further from what we see right now. The labor market has definitely chilled. Hiring rates and quits rates are low. People are staying in their current roles because they know the environment out there isn't really friendly to them.

5:08And that's true whether you're unemployed and seeking a job or whether you would otherwise be upgrading your job, looking for one with better pay and better benefits. So it's a tough job market. It makes things even more difficult for the Fed right now as well.

5:22Sean Pyles:So with all that table setting, what do you think you're going to be watching this year in the labor market? Do you feel like we're on track to hold steady or do you think that we're going to keep weakening? That's a good question. I think what I'm going to be looking at specifically in the coming year is sort of what is causing the cooling right now or what is the big contributor to the cooling in the labor market and specifically what is caused by supply issues versus demand issues. So when you talk about supply in the labor market, what you're really talking about is not having enough workers in the industries that need them.

5:52And so this is really impacted by new immigration policies and enforcement actions that we're seeing. The way this would show up in the data is hiring would be slowing and the unemployment rate remaining relatively low. Now, demand-side issues are going to look like businesses truly pulling back on hiring because business is weak, it costs too much to expand and hire, or they're just generally uncertain about the direction of the economy. What this looks like in the data is a rise in layoffs and rising unemployment. So currently, the signals are that both of these factors are at play in the cooling of the labor market.

6:26But I look forward in the months ahead to getting a little more clarity on which one is the driving force. Now, turning to prices, did inflation behave the way that you expected in 2025? Not really. There were a couple of surprises, but they weren't really dramatic. Just a few things that didn't go the way I anticipated they would. Number one, core inflation stayed stickier. with housing and services inflation really holding overall inflation higher for longer. I didn't anticipate this. And that sort of precipitated the Fed pausing cuts in addition to all the policy things they were thinking about from December to September of this year.

7:01The other thing that didn't go the way that I thought it would was I anticipated faster pass-through of tariffs. I thought we were going to see more quicker impact to inflation from the tariffs that were implemented. You're going to hear a lot about tariffs this episode.

7:17Sean Pyles:Spoiler. Spoiler. But can you talk a little bit more about how they played into inflation so far? Tariffs have had the most direct impact to consumers on finished imported goods. So think about the things that you buy directly from overseas or you buy off the shelf at retailers here that came straight from another country. So we're thinking about toys and electronics. Those we can already see price increases happening in the inflation data. Intermediate goods or products that are used here to build things domestically have also been impacted, but it's the producers, the factories that are feeling the brunt of this.

7:54So we'll continue to see those intermediate goods trickle into consumer inflation, but it's going to happen a little bit at a time. And, you know, it's important to remember that unlike other factors, tariffs are pretty unlikely to cause persistent inflation. What you're looking for here is for these price increases to hit the inflation data once and then cool off a bit.

8:15Sean Pyles:It does seem like we haven't necessarily felt the full effects of tariffs yet, and it's also possible that the tariffs could be rescinded. Can you talk a little bit more about that landscape? As far as tariffs go, we know the Supreme Court has a case on their desk right now. They're looking at the tariffs that were implemented under the International Emergency Economic Powers Act. And so I think we're expecting a decision on that fairly soon. Yeah, the Supreme Court's taken that up, and that would affect every single reciprocal tariff that went into effect last year. So that's most of them. And the ruling should have a pretty big effect.

8:47Sean Pyles:It could result in businesses being owed an estimated$168 billion. It's really unclear what's going to happen next, but we should be getting a ruling as soon as this month. But I do want to point out that it's also possible that the Trump administration could use different avenues to enact new tariffs or try and reinstate the tariffs that they had already put out under two other trade acts that give the president some authority to take actions. And he's used some of those before, especially in his previous administration. So that's a big TBD, right? We don't know what's going to happen and the impacts of those tariffs remains to be seen.

9:24And then I'm also looking at, you know, the impact of current immigration policy, particularly on the labor market. Again, this speaks to the supply issues and labor supply. Certain industries are going to be noticeably suffering. And not just agriculture and manufacturing. We're talking about professional sectors where H-1B delays are impacting the labor market. Overall, as the months wear on and we see how this impacts labor supply, this could mean really bad things for economic productivity and growth.

9:51Sean Pyles:And you've mentioned before the Federal Reserve. Do you think that the Fed's approach was effective in 2025 with the three rate cuts? And are we feeling those cuts yet? Well, the Fed was under considerable pressure last year. I mean, not only explicit political pressure, but the pressure to make decisions with a lack of clarity, a lack of clarity about where the policies were headed and how they could impact the economy. Not to mention the data blackout that happened under the federal government shutdown. So are we feeling the impact of Fed rate cuts yet? Probably not. We know that it takes, quote, long and variable lags for monetary policy effects to hit the economy.

10:29So we'll likely be feeling the cuts, not for potentially months down the road. And we may see another cut in 2026. Now, whether or not they will be effective, that's another big question mark. And that's going to remain a matter of discussion for years to come. I mean, there are still economic papers being written about the response to the global financial crisis and the pandemic. So it remains to be seen.

10:49Sean Pyles:And are there any global events shaping the U.S. economy this year that you want to point out? Well, yeah, I don't want to downplay the impact of tariffs and say we're just looking at inflation and prices, right? We're talking about global trade policy and not just inflation and prices, but the second and third order effects of the tariffs. So this is reorganizing of the global trade system. Protectionist policies here and abroad will change old relationships and forge new relationships. and the impact to economic productivity around the world could be significant. And, you know, this is another thing that's going to take months and years to see what the true impacts are.

11:26But this is something definitely worth watching develop because, again, it speaks to more than just the prices we pay on imported goods. And where do you see prices going in 2026? Inflation is likely to remain high throughout the year, though it's unlikely to get much higher. So we're thinking around 3 percent. We're going to see continued pass-through from tariffs on items or in certain categories. And services inflation is likely to remain sticky due to high shelter and health care costs. One big unknown is wage pressures, and that can go back to the immigration policies. So a lack of labor supply could drive up wages for native-born workers, and wage pressures like that can drive further inflation.

12:06Sean Pyles:We've talked a lot about different indicators, but is there any one that you'll be watching in 2026? Well, 2026 is a long year. I'm going to have my eyes on all of the indicators. I don't know if I have all of those eyes, but I'm going to work on it. But I think in the shorter term, one of the things I'm specifically looking at is layoffs and how they show up in federal data. So during the federal data blackout that we saw in October and November, and we're still catching up to in December, and we will be for the next few months, we heard a lot from private data sources and private companies that were announcing layoffs or reporting big numbers of announced layoffs.

12:42So there's typically a pretty big difference between what is announced and what shows up in the federal data. The problem with that is announced layoffs rarely line up with the layoffs that actually show up in the data. So in the months ahead, I'll be looking to federal data to see what the layoffs actually look like at the end of 2025. And then another thing that I'm going to be keeping an eye on is household debt delinquency levels. So household debt levels have risen to and sometimes above what they were before the pandemic. Not only that, delinquency levels are rising. And this is a real indicator of household financial fragility.

13:18We're seeing it across auto loans and credit card loans. So I will keep an eye on how many people are, you know, becoming increasingly delinquent on those debt balances. And again, that speaks to their ability to weather economic storms should something come down the pike later in the year.

13:35Sean Pyles:And what are some other concerns that you have heading into 2026? I'm a little nervous about that AI bubble bursting. AI investment was something that Fed Chair Jerome Powell had mentioned pretty frequently during his remarks after the Fed made its cut last month. We know AI has been a big economic driver. there's a big question mark as to whether a bubble and a potentially burst bubble can be avoided. So that is a concern. Is it a bubble? And if it is, what happens when it bursts? And, you know, it's definitely something we should be keeping our eye on, particularly because consumer spending has been credited with keeping the economy healthy over the past few years.

14:07But there's evidence that the bulk of that spending is coming from high earners and specifically people with assets. So people with real estate and people with stocks. So should the market tumble and these households suffer, what does that mean for the broader economy? So again, it goes back to that household financial fragility and the ability for households to really withstand economic shocks.

14:28Sean Pyles:And where do you see the biggest risk of an economic surprise? And I mean, upside or downside? So I think this is a trick question because I feel like the biggest economic shocks are the ones we don't see coming. I mean, there's a lot of hindsight, like after an economic shock, people are like, well, we should have seen that red flag, right? Right. But I mean, you think about the global financial crisis, there were a lot of risks bubbling beneath the surface, but they really weren't exposed at large until the Lehman Brothers Investment Bank collapsed and it spread across the world. The COVID pandemic, we definitely didn't see that one coming.

15:02So what comes next? I mean, we're all scanning the horizon looking for the next big risk. And I don't have the answer because I think it might be something we're not anticipating. Sure. Again, I'm looking at how well are households equipped to weather those storm. And I'm concerned right now that households are increasingly fragile. So any of those unforeseen shocks could be detrimental.

15:23Sean Pyles:Anything else you're going to be keeping an eye on this year that might shape where the economy goes next? Yeah, so in the next year, I'm definitely keeping an eye on Fed independents. As we're recording, Trump is weighing a new chair. And by the time this airs, he may have named someone. The big question is, will the new Fed chair be someone that is a loyalist and perhaps more prone to political influence, or will they support a truly independent Fed? An independent central bank is the bedrock of a modern and healthy economy, and so I'll be keeping my eye on that. And then longer term, a couple things.

15:58This year and beyond, I'm going to be paying attention to policies that are put in place to reduce the cost of housing. The main thing driving high housing costs is low supply. So what are municipalities, what are city and state governments doing to make it easier to build more housing that will ultimately bring costs down in the long term? And finally, one more thing, and this is a long, long term thing, is the impact of reduced federal spending on science and research. We're seeing this now through reduced federal grants from the National Institutes of Health and the National Science Foundations.

16:30foundations. Reducing these federal grants has a real impact to potential innovation and economic growth. It can impact us all through our access to modern medicines, impacts to food production, prices, job creation, and so on. And these things take decades to play out. You know, studies funded now are not going to lead to the research that can change 10 years from now. The problem with that is by the time we discover the impacts they're having, it's going to take decades to unwind them. So that's one thing I'm looking forward to in the long-term future.

17:03Sean Pyles:All right, Elizabeth Renter, thank you so much for joining us today with some great context for what we can expect in this new year. Thanks so much for having me. And thank you, Anna. All right, up next, Elizabeth and I get a preview of what's coming down the pike for the housing market. But first, a reminder, listener, to send us your money questions. Maybe you want some help getting your credit in shape to buy a house this year, or maybe you and your partner have a financial disagreement that you want Elizabeth and I to referee. Leave us a voicemail or text us on the nerd hotline at 901-730-6373.

17:32Sean Pyles:That's 901-730-NERD. Or email us at podcast at nerdballot.com. More in a moment. Stay with us.

17:42Elizabeth Ayoola:Today's episode is sponsored by Spectrum Business.

17:45Sean Pyles:Picture this. You're running a business and the internet drops during business hours. Your to-do list instantly becomes one, panic. Two, stare at the router like you're negotiating with it.

17:55Elizabeth Ayoola:And three, start offering customers a brief moment of mindfulness while the checkout screen loads.