The Fed looks set to cut interest rates again in December, but we think investors are too optimistic about further easing next year. We expect only one 25bp cut in 2026, compared with roughly 75bp of loosening currently priced into futures. As a result, long-term borrowing costs should start rising again, eroding the recent modest recovery in home purchasing activity. We expect transactions to peak at 4.35m annualised early next year before gradually tailing off. Pockets of strength in supply-constrained markets in the Northeast and Midwest should just about prevent national house prices from falling this year, and we expect slightly larger gains of around 2% in both 2025 and 2026, as conditions improve in the Sun Belt.
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