Anne Hartnett

Hi, I’m Anne Hartnett with Agent Publishing. Since we recorded our 2026 predictions conversation, a lot has changed, and not all of it was expected.

We’re still talking about uncertainty. We’re still watching mortgage rates hover around that 6% threshold. But the question now is — how is all of that actually playing out in the market?

I’m joined again by Matthew Gardner, chief economist at Gardner Economics, to break down what we’re seeing so far in 2026 and how it compares to what was predicted.

Thanks for joining me again, Matthew.

Matthew Gardner

Always welcome, Anne. Good seeing you again.

Hartnett

Matthew, there’s a lot happening outside of housing right now.

Geopolitics, energy prices, inflation pressures — how much of what we’re seeing in the housing market is being driven by those bigger forces versus housing specific dynamics?

Gardner

Well, I think the most direct transmission mechanism from geopolitics to housing runs through energy. Energy, to inflation, to bond yields, then to mortgage rates. Now, geopolitical conflicts obviously have inflated global energy prices significantly — crude hit $115 a barrel following the tax on the energy infrastructure in Iran. Now, the oil shock has effectively neutralized the downward trend that we saw in inflation or consumer prices, which started earlier on in the year.

That means that bond investors, they want higher yields, a higher return, because obviously to offset higher inflation, and therefore, the 10-Year Treasury, which mortgage rates are based on, hit a high of 4.34%, I think it was, because lenders base mortgage pricing on bond market conditions. We saw a massive move in mortgage rates. So even when the housing market itself is essentially unchanged, those geopolitical developments shifted rates through that effect on inflation expectations and Treasury yields.

So bottom line on this is that tariffs are certainly still hitting, and even though the Supreme Court did make their decision, it still means that prices of raw materials — building materials — are still higher than you’d expect to see. That’s hitting the new construction market. So you’ve got oil shocks leading to inflation, tariffs leading to bigger concerns over new construction, and the crucial point is that these macro forces are landing on a housing market that was already, I believe, kind of structurally impaired. I mean, housing activity? Subdued. We know that’s happened already. But what we’ve seen is that the spring market, normally robust, has been held back. We’ve still got a supply shortage, even though listing activity is high as we’ve seen year on year. Still not normal, largely driven by the mortgage lock in effect that we’re seeing a lot of people have, and mortgage rates higher, weakening affordability. So, in all, think of it this way: macro forces, these broader economic forces, are controlling the pace of the housing market. But housing-specific dynamics, they’re controlling the floor, the bottom part.

So if we see geopolitical tensions easing tomorrow, rates drop back down to 6%, I think we’ll see more of a demand surge. But you still hit an inventory wall. Conversely, if inventory is suddenly normalized, the market will still be constrained by whatever rates geopolitics and inflation have dictated. So, in all, where do I expect to see it? I think that housing demand is still there, but there are more obstacles than we would have expected to have seen at this point in the cycle, and certainly at this point of the year, purely given what’s happening, with the situation between America and Iran.

Hartnett

How much of today’s mortgage rate environment is really tied to global uncertainty versus domestic policy? And what should we be watching more closely?

Oh, wow. Well to me, the honest answer is both. I mean, they’re deeply entangled with each other, but in a way that’s worthwhile unpacking. So the transmission mechanism, well, it all flows through the 10-Year Treasury as we talked about. I mean, the Fed doesn’t set mortgage rates at all. Mortgages are based on the yields on 10-year paper. And the Fed has been rather cautious in terms of its stance on rates so far this year, on the short-term of it. But we’ve still got higher yields because of inflation coming into play and global uncertainty. So that’s happening. From the global standpoint, I think that, you know, it’s going to drive people historically, it drives people away from equities and into the security of treasuries.

That should be good for mortgage rates normally, but this time it’s different. I mean, the oil prices mean worries about inflation and therefore bonds hate inflation. And so we’re really not seeing what you would expect to see in terms of mortgage rates, which should be coming down, and they went up. So the Fed is there, I think we’re not sure what they’re going to do, quite frankly, through the course of the year. Let’s see when we get a new Fed chair. They don’t control rates, however. But the potential is we could see them not lower rates, because they would not do so in order to try and tame inflation. So we could see that remaining higher and that obviously does have some impact on mortgages.

But tariffs — they’re still around. That is still important. That’s still really going to see higher respective inflation where you expect to see it. Deficit also comes into play as well. That large budget deficit, that puts upward pressure on long-term treasuries. So what to watch closely. If I was to have my Gardner’s list of things by the quality of what they tell you: One, monthly inflation. CPI and the PC, which is another index which we look at in terms of the direction of inflation and therefore what the Fed and the government are likely to do. Two, the 10-Year Treasury itself. Around auction dates, weak demand in treasuries — well, that could cause mortgage rates to go up. If Japan continues to pull back — China, we know, is pulling back in terms of buying 10-Year paper. That’s gonna have an impact on mortgage rates as well. Third, oil prices in the Straits of Hormuz. I mean, the PPI data, the producer price index, says, you know, inflation is not going to go away any time soon because of the oil shocks. So watch that.

And finally, you know what’s going to happen with the Fed and with Chair Powell? We know that Kevin Warsh likely will be the new Fed chair, but the question is going to be when. So the bottom line right now I’d say is global uncertainty and domestic policy. They’re not competing explanations, they’re actually reinforcing each other at almost every level. And that’s what makes the environment stay kind of stickier than you’d normally expect to see in a rate cycle. Relief, I think, is going to come first from geopolitical de-escalation. Hopefully we get things squared away with Iran, that will help. Again, it’s not going to be very quick. It will take some time, but that would certainly be beneficial to the housing market. If the Fed, again, is looking at the same data that I’m looking at to get a better idea of what they need to do.

So, long-winded answer to a direct question is, a lot of things are playing with each other that are significantly impacting not just housing demand, but also housing supply.

Hartnett

If inflation proves stickier, how does that constrain the Fed’s ability to ease. And what are the downstream implications for housing demand and transaction volume.

Gardner

Now, sticky inflation. I mean, the Fed issue, it’s more acute than in a typical cycle because of the source of the inflation. Normally the Fed faces demand shocks. The economy is overheating, you tighten. You raise rates. If it’s contracting, you loosen. The math is pretty straightforward. But we’re seeing supply-side shocks and they do the opposite. GDP growth decelerates. Inflation accelerates. That puts the Fed in a genuinely difficult position when cutting rates risks inflaming inflation. But holding rates where they are or dropping them — that could deepen the economic slowdown.

Now, back in January, the market surprised two cuts in for the Fed this year, now down to one edging towards possibly zero as both the bond market and the Fed officials have actually looked at, in essence a hold-steady, do-nothing path. But the downstream problem for housing demand is not just at the rate level. It’s coming from uncertainty more than anything else.

Now, even mortgage rate stability, rather than any kind of dramatic declines, that may be a positive outcome for housing because stability reduces uncertainty, helps buyers and sellers make those long-term decisions with more confidence. But the corollary is that volatile rates in a sticky inflation environment actually are worse than high rates if they make it impossible to underwrite a purchase, so, meaning that we can’t make that decision to buy or sell a home. And that’s the biggest dimension that’s not really being talked about right now. It is just that level of uncertainty we see in the marketplace, certainly from buyers. When you think about it, for almost 98% of them, home buyers, buying a home is the most expensive thing they’ll ever buy in their lives. And when we’re not sure about things, what do we do? We do nothing. And so that I think is really was what is the biggest thing I would suggest is holding the market back right now.

Hartnett

How much of what we’re seeing right now is driven by affordability versus hesitation in overall consumer confidence?

Gardner

Yes, it’s one of the most important diagnostic questions in the housing market right now, as far as I’m concerned. The data keeps telling a story. It’s very nuanced. And I hate to say, it’s actually more troubling than most market commentators are sharing. Short answer is, both are real, but they’re hitting different populations. Affordability is a structural barrier — the hard, mathematical constraint that qualifies or disqualifies buyers regardless as to whether they want to buy or not.

The confidence — confidence is a behavioral barrier. I mean, the hesitation that sidelines buyers who could qualify, but they won’t pull the trigger. And right now, both are operating simultaneously, but they’re not hitting the same people. And that makes the cycle very difficult to read. Now, what I mean by this is affordability — the math is bad, actually getting a little bit better. We are seeing incomes continuing to rise. But look at the demographics beneath it. Gen-Z, younger buyers, they’re enthusiastic about homeownership, constrained by affordability. High student loan debt, these kinds of things. Millennials, roughly half of which are homeowners today, they’re weighing whether it’s more cost effective to buy or whether they should rent. Gen X, well, wealthy, many who’ve got very low mortgage rates, they’re reluctant to surrender those. Boomers have got wealth but don’t need to move. Highly discretionary.

So it is that stratification because it means that affordability is not a uniform force. It’s a total barrier for younger buyers, rather, while being nearly irrelevant for asset-rich, older cohorts. So aggregating housing demand that masks the split or almost entirely.

Confidence. Well, the problem, as we talked about the math, is improving enough. So we’ve seen actually affordability improve a little bit, from the almost-7% mortgage rates we had a while ago. But there’s a sense that lower rates may not be enough to entice hesitant buyers to get them off the sidelines. Now, lower rates coupled with better confidence, improved consumer confidence, that could re-accelerate the market. So decoupling those two things, actually relatively new. Prior cycles, rate relief and demand recovery were essentially the same lever, right? Now they’re separate. Now the mechanism driving that gap is really urgency, or rather the absence of urgency. Most housing cycles turn into action when the cost of waiting becomes obvious. Prices climb, options shrink. Multiple bidding wars occur. Now that dynamic, whether you call it urgency or FOMO, fear of missing out, has historically been one of the strongest drivers of housing demand.

Today, that force is largely absent. Prices have softened, inventory not where it was but it has grown, incentives, certainly new construction, very plentiful. And that all conveys one message: There’s time. And when buyers think they have time, they tend to use it.

So you really are getting to a point of we’re just going to wait and see. What’s going to break that stalemate? Well, I mean, I think that as long as people are confident in their jobs and employment, again, there’s some uncertainty there, if they see that they’re not gonna lose their job, that they’re okay with it, that’s going to help stability and interest rates for these massive fluctuations that will help. And stability and home prices. And so when you see it as an asset which is steadily appreciating, well, then I think you’re going to find a lot more interest in the marketplace from would-be buyers.

Hartnett

With all of these external factors, from rates to geopolitics, how should real estate professionals be talking to their clients without sounding reactive or uncertain?

This is where the craft of the profession really shows. Because the temptation in a volatile environment is to either over-explain the macro or avoid it entirely. Both approaches, I think, fail their clients.

So, here’s how I would think about it: Lead with the client’s timeline, not the market’s timeline. The single best way to frame it is to shift the conversation from what the market’s doing now to what is your client’s life doing now? Market timeline and the client’s timeline are almost never the same. And conflating them is where most of the anxiety in these conversations originates.

So a buyer who needs to be in a, I don’t know, a specific school district in four months? Well, they don’t have the luxury of waiting for the 10-Year Treasury to normalize. Obviously. Now, a seller whose family situation has changed isn’t really making a market timing decision, they’re making a life decision that happens to involve real estate. Now grounding the conversations there first I think gives a foundation that, no Fed meeting can destabilize that. So that’s the first place I would go.

Secondly, I’d be the person who explains, not the person who reacts. What do I mean by that? Clients are swimming in reactive commentary. Every headline, every rate move, every geopolitical development. There is so much data coming in. But what they’re not getting is someone who can calmly explain why things are happening and what actually matters versus what’s noise. And there’s a lot of noise out there now.

Now, you don’t need to be an economist. But knowing that mortgage rates track the yield on the 10-Year treasuries, not the Fed funds rate, and be able to explain that clearly when a client asks why rates went up after the Fed held steady, for example. That positions you as someone who understands the environment rather than someone who’s surprised by it. That distinction is everything, I believe, for client confidence. The goal is to be the calmest, most informed voice in the room. Not falsely optimistic. Not anxious. Just grounded.

Two, the lock-in effect means inventory will remain constrained for the foreseeable future. Three, home prices in most markets — they’re not in freefall. They’re actually rather sticky. And finally, the rent versus own math in many markets still favors ownership over a five-to-seven year time horizon.

So, when you can say, here’s what we don’t know and here’s what we do know, well, then you sound like a trusted advisor rather than somebody who’s reading the same anxious headlines as your client. So, give your client a framework, not a forecast. Forecasting rates or prices now — believe me when I tell you it’s not easy. And anyone who says “with confidence, mortgage rates will be at X in six months time,” they’re either quite frankly, guessing, or they’re misleading.

Hartnett

NAR projected a very strong rebound in sales around 14%. Based on what you’re seeing so far. Does that still feel achievable, or does the current pace suggest something more moderate?

Gardner

Well the timing of this question is kind of notable. March Existing-Home Sales came out, tells a very interesting story. But the 14% forecast actually is no longer operative. I believe that NAR itself has now cut its sales outlook back down from 14 to just 4% growth. New home sales are flat, revised from 5% on the upside.

Now, what makes this revision very significant? Not just the magnitude, but it’s what a lot of the economists are saying. I mean, you’re saying that sales are still sluggish, lower consumer confidence, softer job growth, all holding buyers back. And that’s the confidence problem we’ve been discussing through this conversation, and it’s showing up in the hard data.

So there’s a few things worth unpacking about why that original forecast was always optimistic — and you know, Anne, I thought it was from the day one — and what the revised picture really looks like. It was based on assumptions that didn’t hold up. And so, the November 2025 projection, when they put it out they assumed easing mortgage rates, more job gains, better market stability. None of these three things happened. And of course, the geopolitical tensions, no one saw those coming as well. Two, the spring selling season, the make-or-break window. Not making it. And again, based on the war with Iran, really holding that spring market back. And so when you see that situation arise, it’s going to be very hard to get to that 14%.

Inventory? Getting better, not really unlocking that much in demand. Inventory is about, what, 3% month on month? 4.1 months of supply, I believe? Now, that’s a four-month high, but still pretty much not where it should be, not normal. More supply without more willing buyers just means homes sit longer, not that a market clears. The one genuinely, in my opinion, stabilizing signal? Prices, up 1.4% year on year, 33rd consecutive month of year on year price increases.

So that’s what we’re certain of — the positive part. But, you know, sellers aren’t capitulating. They’re not slashing prices, at least not nationally. Enough of an equity cushion there. So where does it leave the revised annual outlook? A 4% gain over 2025 baseline. Yeah, I think that that is very reasonable. And that’s roughly in line with what I’d been saying was going to be the case last year anyway. But it is going to require the second half of the year to do most of the heavy lifting. Now, that’s going to require either a meaningful rate decline or confidence recovery or both.

So, honestly, 14%, I never saw it. I think most people thought the same way. I think it was a best-case scenario. But the conditions that required it, none of which, were met. And so because of that, the market right now is tracking closer to, again, my forecast, which was actually around 4 to 5%, about 5%. So I think we’ll see that, but even that could be wrong depending on how long the Iranian conflict goes. If we get through into the summer and things aren’t addressed then, then I think it’s going to be hard to even get to that point in terms of sales growth in the second half of 2026.

So, unfortunately for Lawrence, all the things he was hoping would happen in order to allow that 14%. None of which have, other than the fact that we haven’t seen prices being slashed. So, I think coming back down to that 4%, certainly closer to reality now than they were back in November.

Hartnett

Alright. Thank you so much for joining us today, Matthew. I look forward to chatting about Q2 with you soon.

Gardner

You are always welcome, Anne. It’s always great fun visiting with you.