Interest Rates and Housing Forecasts

Online searches will give you exactly what you expect when it comes to housing market predictions – clickbait-filled fear mongering and people trying to get you to buy their course or follow their media outlet. Spoiler alert: I believe the 2026 Northern Arizona Market is going to be fairly boring and predictable; but given all the excitement we’ve just been through in the last 5+ years, I think we’ll all welcome it. I’ll make my case based on simple economic principles and I truly hope this helps you with your potential 2026 Real Estate moves!

Market Crash Clickbait

Supply and demand is one of the, if not the, biggest factors when it comes to market prices. We will certainly experience geographic differences in this dynamic nationally, but here in Northern Arizona, the fact that we have a city-declared housing emergency should communicate to everyone clearly that we do not have sufficient supply for the demand of our growing population. This alone is a primary reason that prices in Northern Arizona are higher than state averages, as well as more stable than many other areas in the state, much less the country.

If we are to expect a crash or something of a double-digit percentage price reduction, we would need to see inventory outpace demand. In the height of the 2008 meltdown and foreclosure epidemic, Flagstaff reached upward of 17-18 months of inventory. We ended 2025 with less than four months of inventory. There is not a silver-bullet-solution inventory creation and there are not market indicators that mass mortgage market failure would lead to a mass foreclosure event, so as boring as it sounds, we’ll likely continue in 2026 in a tight demand and supply market.

The chart shows national appreciation forecasts over several different institutions, but the big takeaway there is that most are positive and none of them predict significant depreciation much less a crash – never say never, but there are simply not logical indicators for a crash.

Rates Will Lead

At the time of this writing, the end of January 2026, mortgage rates are approximately 1% below their 2025 peak. This is a big deal! On an average $450K loan amount, that is about $300 a month in savings that new buyers or refinancing homeowners can experience.

We’ve cited a Fannie Mae study in the Flagstaff Business News before, but every .5% reduction in interest rate is upwards of 2.5 million people nationally that can then qualify for a home purchase. Lower rates then will push up demand, can also potentially open up some of the “frozen inventory” of pent-up move-up buyers as they finally consider giving up their sub-4% rates to get the home that better meets their life goals and will hopefully then create more inventory as that market “thaw” and increased seller confidence react to a lowering rate environment.

No, I don’t predict that we’re going to see another 1% dip in the next 12 months. Most experts estimate flat to maybe .25-.375% reduction over the next year. So yes, 2026 could be more or less boring on rates, no flash 4%s in the likely future but the stability and market coming around to the stability will have a normalizing chain reaction.

Boring is Good

Moderate price growth, slight mortgage rate lowering, important but slow affordability improvement – yup, these all sound pretty boring! But what boring does, is create confidence, a condition that hasn’t widely prevailed in the last five+ interesting years and I believe this will be a very healthy next 12 months in the Flagstaff real estate market where individuals and families can make boring, simple, predictable decisions to invest in real estate – enjoy it while it lasts! FBN

By Chris Hallows

For additional information or to schedule an appointment visit ChrisHallows.Benchmark.us or call 928-707-8572. The Flagstaff location is 824 W Rte 66 Suite A-3.

Chris Hallows is the Branch Manager & Sr. Mortgage Advisor of Benchmark Mortgage Flagstaff.

NMLS 306345 Ark-La-Tex Financial Services, LLC NMLS 2143 |Equal Housing Lender