Navigating housing affordability and a rising recession risk: Top economists’ takes on a gummed-up economy

We’re entering the second quarter of 2026, and the year already feels unexpected. At just over three months in, some key economic predictions for the year have had to be recast.

For instance, the housing market started the year with mortgage rates on the downtrend. Home prices in many areas were also trending down or staying flat. It appeared we were headed for one of the better years for home affordability and home sales since COVID. However, continued volatility due to inflation and the war in Iran has thrown a wrench into things, and mortgage rates have climbed in recent weeks.

“While we don’t know the duration or ultimate impacts of the Iran war, there is some reassurance to be found in our survey results,” says Mark Hamrick, Bankrate senior economic analyst. “We should see some easing of long-term interest rates and relative stability for the job market.”

Bankrate has been surveying the nation’s top economists every quarter for a decade. Once again we asked them to peer into the looking glass to tell us what they expect in terms of mortgage rates, recession, unemployment and inflation.

One of the biggest changes in this quarter’s survey was the rise in recession risk. The risk of recession increased from 28% at the end of last year, near the lowest it had been in several years, to 34% this quarter. The single most cited reason for increased recession odds is the war in Iran and its impact on the oil supply.

The rise in oil prices that we have seen so far isn’t enough to put the U.S. in a recession, but makes the economy more vulnerable to any additional shocks. Several economists noted that, while the U.S. may not be dependent on foreign oil, it’s not immune to the effects of a global downturn.

— Michael Pearce, chief U.S. economist at Oxford Economics

The U.S. economy was already facing a number of headwinds, and the war in Iran added another on the list.

The convergence of forces driving higher recession odds include an escalating Middle East war pushing fuel, fertilizer, and critical input costs higher; persistent inflation above the Fed’s 2% target now in its fifth year; a labor market that is weakening; and a Federal Reserve that is effectively sidelined.

— Yelena Maleyev, senior economist for KPMG

All of this could understandably make choosing to buy a home or invest in your current one feel like a risky decision in today’s economy. If you feel stuck in your job or in your housing situation, you can reasonably blame macroeconomic reasons for it. Home sales have slowed significantly since 2022 and job growth has remained stale for the past year. Many of the economists surveyed expect little to change this year.

“We anticipate that employment growth will persist at a subdued pace throughout 2028.” According to Saidel-Baker, layoff numbers are lower than they were this time last year. For those ages 25 to 54, the labor force participation rate is at its highest level in 20 years.

This trend suggests there is little slack in the labor market to fill the gaps when hiring accelerates later this year.

— Lauren Saidel-Baker, economist at ITR Economics Quarterly.

Several economists expect the job market to remain in a low-fire, low-hire mode throughout the year, with both labor supply and demand slowing. That’s a bit of a double-edged sword for workers; they may not feel a risk of being laid off, but the ability to change jobs may not be there, either.

This slowing labor supply and demand effect impacts  the housing market, too.

“The housing market continues to suffer from a shortage of supply, while rising mortgage rates are keeping buyers sidelined yet again,” says Maleyev with KPMG. “Home values continue to rise nationally, albeit more slowly, and the equity in homes remains substantial even as some pockets see declines.

The good news is that the economists surveyed predict 30-year fixed mortgage rates to fall to 6.05% by the end of the year: noticeably lower than where rates currently sit at around 6.5%.

“If, as our survey indicates, average 30-year fixed mortgage rates move closer to 6% by year-end, that provides some relief for buyers and sellers alike,” Hamrick says.

Part of what’s kept the housing market so tight is that many current homeowners have mortgage rates near 4% or below at a time when, over the past three years, rates have ranged from 6%-8%.  Many homeowners who bought at the start of the decade couldn’t afford to repurchase their current home at today’s prices and rates. This has kept people from selling, leading to a restriction in supply. However, the further we get from the low rates last seen in the early 2020s, the more normalized a 6% or higher rate becomes.

“The lock-in effect will linger, but the worst of the lock-in shortage of inventory is over,” says Lawrence Yun, chief economist at the National Association of Realtors (NAR).

Additionally, Hamrick points out, Freddie Mac’s long-term average rate is 7.70%, so today’s rates are not historically out of line. On top of that, new construction in many markets in the south and west has increased supply, and home sale prices are declining or leveling out in these markets.

While the average rate on outstanding mortgage debt is around 4.4%, rates don’t need to return to that level to get the market moving. We would expect a pickup in activity as mortgage rates move into the 5 percent range, particularly given the significant pent-up demand and below-trend existing-home sales in recent years.

— Odeta Kushi, deputy chief economist at First American Financial Corporation

Still, buyers and homeowners face continue to economic headwinds. Even if mortgage rates drop meaningfully this year, the costs of owning a home are likely to continue to rise.

The Fed never fully pushed inflation back to its 2% target, but things were stabilizing and inflation was slowing as we headed into 2026. That chapter may be changing again, though, with the war in Iran and increased global tensions. On April 10, new Consumer Price Index data showed that inflation increased to 3.3% for March. That’s up by 0.9% from February — the sharpest month-over-month increase since June 2022. What’s more, even if this war ends tomorrow, the rising costs due to oil supply disruption and trade restriction will likely linger.

The war will put substantial upward pressure on inflation. And the initial jump in inflation will likely be followed by elevated inflation for a longer period of time. Absent a sharp slowdown in the economy, it is hard to see how inflation reaches the Fed’s target quickly.

— Mike Fratantoni, chief economist for the Mortgage Bankers Association

But how long will elevated inflation last? Over 94% of the economists Bankrate surveyed say inflation may take until at least the end of 2027 to fall inline with the Fed’s 2% target. A full 44% push it out further: by the end of 2028 to hit the 2% benchmark.

For homebuyers and homeowners, these rising costs could trickle into their world. Homebuilders — already struggling with lower demand, high tariffs and a waning workforce — may be less likely to add more construction if costs rise. Homeowners could feel rising oil prices in their utility bills and through further market inflation that could make maintaining and upgrading their homes more expensive.

Despite multiple threats to the economy, it could be worse. After all, even a 34% chance of recession still puts the odds in overwhelming favor of a recession not happening. Here are some of the reasons economists think there’s a case for cautious optimism:

The consumer growth engine: “Consumers have remained a consistent growth engine in the U.S…. consumers are stable overall and leading indicators point to growth,” says Saidel-Baker, with ITR Economics.

U.S. energy independence: “As the U.S. is a net exporter of oil, it faces much less risk than countries in Europe and Asia that import their oil,” says Scott Anderson, chief U.S. economist at BMO Capital Markets.

Labor market stability: “The labor market is slowing, but it is not cracking. Employers have pulled back on hiring rather than rushing to wholesale layoffs. This helps explain why job growth is expected to remain modest while unemployment drifts somewhat higher,” says Hamrick.

Still, many Americans can feel the tightness of the current economy in their day-to-day lives. Whether that’s at the grocery store, when applying for a job or trying to pay for housing. But, even if the market feels stuck, everyday life isn’t. People are still buying homes, selling homes and finding ways to pay their rent.

“Life goes on while mortgage rates move up and down over time,” says Hamrick. “People move because of marriages, divorces, births, deaths, new jobs, retirement and all the other real-world changes that shape household decisions.”

It’s easy to see that a more affordable housing market and a healthier job market would empower more people to make big life decisions. Until then, many Americans are paying the premium on patience and preparing for when they need to make a move.

Methodology

The First-Quarter 2026 Bankrate Economic Indicator Survey of economists was conducted March 23-April 1. Survey requests were emailed to economists nationwide, and responses were submitted voluntarily online. Responding were: Tuan Nguyen, economist, RSM; Odeta Kushi, deputy chief economist at First American Financial Corporation; Brian Coulton, chief economist, Fitch Ratings; Yelena Maleyev, senior economist, KPMG; Oren Klachkin, financial market economist, Nationwide; Lawrence Yun, chief economist, National Association of Realtors; Joseph Mayans, Chief Economist, Experian; Joel L. Naroff, president, Naroff Economics; Selma Hepp, chief economist, Cotality; Lauren Saidel-Baker, economist, ITR Economics; Hugh Johnson, chairman and chief economist, Hugh Johnson Economics; Scott Anderson, chief U.S. economist and managing director, BMO Capital Markets; John E. Silvia, founder, Dynamic Economic Strategy; Dante DeAntonio, senior director, Moody’s Analytics; Gregory Daco, chief economist, EY; Mike Fratantoni, chief economist, Mortgage Bankers Association; Michael Pearce, chief U.S. economist, Oxford Economics; and Bill Dunkelberg, chief economist, NFIB.