Shaina Mishkin
The new year comes with expectations of a fresh start. The housing market is really hoping for that.
Home sales in 2025 were likely once again the worst in roughly three decades, brought about by high buying costs and hesitance to make big-ticket purchases. The housing market's doldrums have stoked the ire of consumers, drawn the attention of policymakers, and accelerated industry consolidation and discord.
This year is full of potentially consequential moments for buyers, sellers, and investors. Here are three big areas that investors should watch.
Buyers Return
Costs have eased, meaning house hunters could return in force this spring. Home builder stocks aren't acting like it.
Once 2025's completed home sales are finally tallied in January, the reading is likely to be tepid. But looking at annual existing-home sales alone paints a bleaker picture than warranted. Spring could bring a hotter-than-expected home buying season, even if 30-year fixed mortgage rates hold at levels above 6%.
The trajectory of the market will depend on where costs are during a critical period beginning in late January. It might not take a 30-year fixed rate below 6% for buyers to get back in. Recent levels could be less restrictive than perceived because of housing market seasonality.
In much of the country, demand begins to bloom in late January through February, accelerates in March and April, and reaches its zenith in May and June. That is notable because mortgage rates measured by Freddie Mac averaged a significantly higher 6.9% in January and February, and 6.7% through March and April. By the time mortgage rates started to decline in earnest, the typically strong home buying season had come and gone.
Existing-home sales that closed since August, while not blockbuster by any means, have improved on a seasonally adjusted basis, and contract signings saw a notable bump in November. The improvement is a sign that more buyers are finding home purchases palatable even at recent rates -- a good sign for demand in 2026.
Yet the home builders' so-called seasonal "hope trade" -- a stretch of time during the housing market's winter slumber when the stocks perform well on budding expectations for sales come spring -- was more of a "nope trade" in December.
The iShares U.S. Home Construction exchange-traded fund dropped more than 7% through December, underperforming the S&P 500 during a month when gains historically average 1.3%, according to Dow Jones Market Data.
The underperformance comes as buyer fatigue continues to weigh on profit margins and public builders offer cautious guidance for 2026. "Order numbers are [now] less relevant compared to how much margin they're giving up to get those orders," says Ryan Gilbert, an analyst covering home builders at BTIG.
Margins will remain the number to watch as investors await a bottom. If buyers in 2026 remain few and far between, expect margins to stay weak, pushing builder stocks' recovery further down the road.
But if late 2025's early signs of improvement hold, a more enthusiastic buyer could reduce the need for builders to offer incentives, steadying margins and proving early guidance conservative.
Washington Focuses on Housing
President Donald Trump's administration will try to give the housing market a jump start through policy. The question for investors is exactly what that will entail.
Investors should keep their eyes on two separate areas that occasionally overlap: How the administration confronts housing affordability, and plans for the future of the two secondary mortgage market giants Fannie Mae and Freddie Mac.
The former was a big topic for politicians in 2025, with the Senate and House both passing their versions of bills meant to remove barriers to construction and homeownership. Trump in mid-December said "in the new year, I will announce some of the most aggressive housing reform plans in American history."
As Barron's wrote in the run-up to the 2024 election, high costs are a tough nut to crack with policy. Spur buying without appropriate building and prices will climb, as they did in the pandemic's early years -- not a politically popular outcome at a time when hot inflation is hard to extinguish. But tip too far in the other direction, with homes for sale outnumbering buyers, and homeowners risk watching their equity evaporate as prices drop -- also politically unfavorable.
It's unclear which of the housing policy ideas bandied about in 2025 will make it into that plan. The White House didn't provide details in response to a Barron's inquiry.
Investors in home builders are among those waiting for details. Raymond James analyst Buck Horne is "keenly aware" of housing policy chatter, he wrote in a late December note. "How any new policy might directly benefit home builders remains a very open-ended question, in our view."
The administration has been in conversation with builders about housing affordability, Lennar CEO Stuart Miller said on a December conference call -- though "the specifics of potential programs remain to be seen," he added.
Reform efforts can both help these companies -- such as changes to regulation that remove zoning obstacles or drum up housing demand -- or hurt them.
An October social media post by Trump, which compared large home builders to the oil cartel OPEC and urged them to "start building homes, " led Evercore analyst Stephen Kim to downgrade a host of home builder stocks. "The housing market is now at a fragile equilibrium, and increasing production will result in falling prices, which is not in anyone's best interests," he wrote at the time.
Another group of investors closely watching the government's approach to housing are those awaiting the release of Fannie Mae and Freddie Mac from their nearly two-decade conservatorships. Freddie Mac and Fannie Mae didn't respond to a request for comment.
Investors in the companies' common stock, which trades on OTC Markets, are eager for news after the administration floated the possibility of a new public offering in 2025. Fannie Mae and Freddie Mac shares rose 227% and 211% respectively in 2025 on anticipation of federal action.
The two mortgage giants play a critical role in housing market liquidity by buying, packaging, and selling conforming loans to investors, freeing up originators to keep making loans. In 2008, when the mortgage meltdown threatened the U.S. housing market, the Treasury agreed to support the two companies in exchange for senior preferred stock purchase agreements. The two companies have been under conservatorship by the Federal Housing Finance Agency since then.
Taking action would require a delicate exit from direct government control in a way that preserves the implied willingness of the government to step in if there's a crisis. An end to government conservatorship would also require a plan for the Treasury's stake in the companies. The FHFA and the Treasury didn't respond to Barron's request for comment.
Industry Shake-Up
Big housing industry deals and litigation could continue to shake up public companies' distribution of power and reshape the way homes are bought and sold in the U.S. The downstream effects, on both the housing services industry and consumers, will become clearer in 2026.
The market had plenty of unions in 2025. Mortgage originator Rocket purchased mortgage servicer Mr. Cooper and brokerage Redfin earlier this year. Anywhere, one of the largest public residential real estate brokerages and franchisers by market cap, is in the process of being purchased by the even larger brokerage Compass.
With Rocket's mergers completed, eyes will be on the Compass and Anywhere deal in 2026. That merger, which is expected to close in the second half of 2026, is subject to review by the Department of Justice and Federal Trade Commission. It will add to Compass's heft as the largest U.S. real estate brokerage by sales volume. Senators Elizabeth Warren (D-Massachusetts) and Ron Wyden (D-Ore.) have urged the two bodies to investigate the merger, citing antitrust concerns. Compass and Anywhere declined to comment.
Housing technology company Zillow Group is facing differing complaints from the Federal Trade Commission, consumers, and competitors, but investors' eyes, for now, are on its court battle with Compass. A Zillow spokesperson directed Barron's to the company's previous statements in response to litigation, including one in defense of Zillow's listing policy.
Compass is seeking a preliminary injunction against Zillow's policy governing how homes that appear on its site are allowed to be marketed, and has accused Zillow of being a monopoly in the process. In court filings, Zillow said the brokerage failed to show that Zillow's rules harmed the housing market or that it has market power.
Depending on the court case's outcome, buyers might find fewer homes marketed widely on the web , Barron's previously reported . That could increase the incentive to work with a real estate agent, who may have access to a trove of unadvertised listings, in a boon for brokerages.
Of interest will also be new entrants to the listing space. Alphabet's Google is testing real estate listings at the top of some search results. That sent shares of Zillow, Compass, and CoStar Group falling in mid-December.
Write to Shaina Mishkin at shaina.mishkin@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
January 06, 2026 03:00 ET (08:00 GMT)
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