The American Enterprise Institute's Housing Center released its monthly update to the AEI Housing Market Indicators on February 3, 2026, offering a comprehensive overview of the housing market's performance and trends. Here's a breakdown of the key insights and takeaways:
Home Price Appreciation and Supply Trends
- Median Purchase Rate: As of week 5, 2026, the median purchase rate remained steady at 6.0%, marking a 1.625 percentage point decrease from its peak in week 43, 2023, and a 0.75 percentage point drop from week 24, 2025. This rate is consistent with the 2024 low.
- Year-over-Year HPA: In December 2025, the preliminary year-over-year home price appreciation (HPA) stood at 2.1%, a slight increase from 1.9% the previous month, but lower than the 4.3% recorded in December 2024.
- Rate Impact: The December HPA increase is attributed to the downward trend in interest rates during the period when these home sales were finalized.
- Year-over-Year Spread: The year-over-year spread between the fastest-growing (Milwaukee, WI at 7.2%) and slowest-growing (Palm Bay, FL at -7.4%) metropolitan areas was 14.6 percentage points, slightly lower than November's 14.8 percentage points.
Scenario Analysis: Lower Rates, Higher Prices
- Economic Projections: The Trump administration forecasts robust economic growth, with 30-year fixed-rate mortgage interest rates expected to drop to 4.5% from 6.25% in early January 2026.
- Demand and Supply Imbalance: Lower mortgage rates, coupled with strong economic growth, are likely to boost housing demand significantly. However, if supply does not increase, this could exert upward pressure on home prices.
Unfreezing Residential Capital for Supply and Affordability
- Addressing the Crisis: Continuing to stimulate housing demand without addressing supply will exacerbate the housing crisis, leading to rapid home price appreciation.
- Deregulation Solutions: To unlock underutilized capital, deregulation is essential. Tax regulations often freeze large portions of the existing housing stock, while inflexible zoning laws make building starter homes illegal, hindering land use optimization.
Banning Large Institutional Investors: Unintended Consequences
- Limited Impact: While President Trump's efforts to address housing affordability are commendable, the ban on large institutional investors (LLIs) may have limited impact, especially considering potential unintended consequences.
- Market Statistics: As of November 2025, LLIs owned only 1.0% of the nation's single-family housing stock, unchanged since March 2024. Their acquisitions accounted for less than 2% of all single-family home sales during this period.
- Consequences: Banning LLIs could result in fewer homes sold to owner-occupants, distorted new construction markets, delayed market adjustments, and a loss of rehabilitation capital.
Downsides of a Single Credit Score Model
- MBA Proposal: In December 2025, the Mortgage Bankers Association (MBA) introduced a proposal allowing lenders to underwrite mortgages using a single credit report for borrowers with an initial credit score of 700 or higher.
- Potential Drawbacks: This approach may lead to score shopping, score inflation, and reduced Loan-Level Price Adjustments (LLPA) revenue.
- Data Analysis: Using ICE origination data with anonymized bureau scores, substantial cross-bureau score variations were observed across the credit spectrum.
FHA's Rising Purchase Origination Share
- Market Share Growth: Since May 2022, the Federal Housing Administration (FHA) has seen a general increase in its market share. This growth is attributed to its more lenient debt-to-income (DTI) policies, which have crowded out Fannie and Freddie.
- Policy and Market Response: The recent rise in FHA's market share is influenced by both a changing rate environment and the second mortgage insurance premium cut in March 2023.
- Affordability Impact: As affordability worsened, FHA's higher DTI limits made it a more attractive option compared to other agencies.
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