Where We Are & What May Lie Ahead

Before we dive into what we believe could be the themes shaping 2026, it’s worth taking a step back and reminding ourselves how we got here — because the current market conditions didn’t happen overnight.

In short, interest rates more than doubled in an incredibly compressed period of time. In 2022, we saw rates rise from roughly 3% to over 7% by 2023, eventually peaking above 8%. That rapid shift had a profound impact: pricing softened, buyer demand adjusted, and many homeowners chose not to sell — either unwilling to accept lower pricing or to give up historically low mortgage rates locked in just a few years prior. The result has been an extended inventory shortage, one we’ve now been living with for more than three years. While this is familiar territory for most New Yorkers, looking at these dynamics more closely helps frame what could lie ahead.

The below graph highlights a key inflection point: the crossover between sub-3% mortgages and 6%+ mortgages. This shift is critical to unlocking volume. As homeowners with ultra-low rates slowly cycle out — something already visible in the slope of the data — the rate-lock effect begins to ease. It may take another year or two to meaningfully impact activity, but this is a natural, time-driven progression already underway.

Mortgage rates are also starting the year in a relatively healthy spot, sitting near one-year lows (see graph below).

While a first rate cut as early as April is possible (see chart below), expectations are for a slow, measured path lower rather than a dramatic drop. Historically, this type of steady easing is what gradually restores confidence and brings volume back into the market over time.

Without attempting to predict the future, there is a broader macro setup worth paying attention to. Rents across New York City continue to rise steadily, while purchase prices have remained relatively resilient. As this trend continues, the gap between renting and owning begins to narrow — slowly but meaningfully. For many would-be buyers, the long-term math starts to look more compelling, even in a higher-rate environment.

At the same time, inventory is expected to remain limited in the near term. Historically, when rising rents collide with constrained supply and steady demand, activity tends to pick up. We’ve seen this before — notably during the 2013–2015 cycle — when similar conditions led to increased transaction volume and upward pressure on pricing.

This isn’t a call to action, but rather something to keep in mind if you’re considering being active in the market over the next year or two. Understanding the “why” behind today’s market often provides the clearest lens into what opportunities may emerge next.

If you’d like to explore how these trends may affect your goals, we’re here to help you navigate the landscape.

Here's to a great year ahead!

• The Davidson Martin Gay Team