Editor’s note: this piece first appeared in the November edition of MortgagePoint, which you can read in full here.
As the housing market heads into 2026, affordability challenges, insurance-market stress, and shifting credit conditions are converging with a rapidly changing policy landscape. To better understand the forces that will shape housing and mortgage finance in the year ahead, MortgagePoint spoke with John Comeau, Policy Economist at the Council of Federal Home Loan Banks.
You can read our full cover story in the November edition of MortgagePoint, but in this Q&A excerpt, Comeau explores the underappreciated risks, policy levers, and market dynamics that industry leaders should be watching closely.
From a policy perspective, what are the most underappreciated regulatory or legislative issues that could impact the housing and mortgage markets in 2026 (e.g., GSE reform, affordable-housing tax credits, servicing regulation)?
Home prices, property taxes, rents, and insurance premiums are all near record highs, while mortgage rates have hovered between 6% and 7% since late 2022—roughly double the 3% range of 2020–2021. As we enter 2026, affordability challenges will remain front and center, driven by a shortage of housing supply. Federal housing policy levers have traditionally focused on the demand side rather than on supply. The omnibus economic and housing package passed by Congress in 2025 expanded Low-Income Housing Tax Credit (LIHTC) allocations, established a middle-income housing tax credit, and sought to streamline permitting and incentivize infill development, all beginning in 2026. All of these measures are intended to positively impact the supply side of the equation. In 2026, I will be watching to see the impact of the changes—especially LIHTC, as the other two will have longer implementation timelines—on the nation’s housing supply.
I will also be watching the property insurance market. Wildfires, hurricanes, and other extreme weather events have driven premiums and loss rates higher, causing insurers to withdraw from high-risk geographies despite rate hikes. In 2025, discussion of capping insurance premium increases has increased among state legislators and regulators. While well-intentioned, the measures could backfire if insurers are prevented from recouping losses, resulting in further retrenchment by private carriers and greater reliance on state-backed insurance pools such as California’s FAIR Plan and Florida’s Citizens Property Insurance Corporation. This would shift risk from experienced insurers to states with less capacity to manage catastrophic exposures—an underappreciated negative risk factor for housing markets and mortgage credit in 2026.
Considering the role of the Federal Home Loan Banks in supporting housing and community lending, how do you see the flow of credit in 2026? Will constraints tighten, loosen, or stay about the same? What drives that outcome?
The Federal Home Loan Banks were established to ensure a reliable supply of liquidity to their members in all economic conditions. For 93 years, the FHLBanks have executed this mission, bolstering the financial institutions—large and small—that keep local communities moving forward. The reliability of FHLBank liquidity fosters confidence among depositors, resilience among lenders, and stability across the financial system. As of September 30, 2025, the FHLBanks were supporting affordable housing finance and community investment with $693.5 billion in advances and an on-balance-sheet mortgage portfolio [Acquired Member Asset (AMA) program] exceeding $77 billion, together providing critical liquidity to member institutions. Through the first nine months of 2025, the FHLBanks have committed $480 million to their Affordable Housing Programs and an additional $349 million to voluntary initiatives designed to expand housing affordability, strengthen small businesses, and increase the resilience of the housing stock across the System’s 11 districts.
After pausing for the first eight months of the year, the Federal Reserve cut interest rates in September and October 2025. There has been a U-shaped yield curve for all of 2025. If the Federal Reserve’s actions in late 2025 and continuing into 2026 normalize the yield curve, that would be a positive for FHLBank members, and community lenders more broadly, and increase the availability of credit. That said, the Fed has been shrinking its balance sheet since mid-2022—quantitative tightening (QT)—and has signaled this will continue until December 1, 2025, further draining banking system reserves and offsetting some of the interest rate easing.
Stablecoins also pose a threat to bank deposits: increased adoption could divert deposits from traditional depositories, further tightening bank sector liquidity, especially at smaller institutions.
In this environment, the FHLBanks’ countercyclical liquidity is especially important: through advances, AMA mortgage purchases, and letters of credit, the System will continue ensuring that community lenders have liquidity to meet the needs of the households, the small businesses, and the communities they serve.
How important do you view income-based policy levers (e.g., first-time-buyer assistance, down-payment support, rental subsidies) as the market shifts in 2026?
Income-based policy levers—such as first-time-buyer assistance, down-payment support, and rental subsidies—are important today and will continue to be critical tools in 2026. The Harvard Joint Center for Housing Studies (JCHS) 2025 State of the Nation’s Housing report noted that home prices in early 2025 had risen 60% since 2019, and the median existing single-family home sales price in 2024 was $412,500, a new high. The median 2024 home price was five times the median household income, far above the traditional affordable price-to-income ratio threshold of 3:1.
In 2026, a combination of factors will continue to pose challenges for first-generation and first-time buyers: elevated home prices, rising insurance premiums and property taxes, and interest rates on 30-year fixed-rate mortgages that, while down from their peak, remain well above the ~4% average that prevailed for more than a decade from 2009 to early 2022. In this environment, closing-cost assistance, down-payment grants, and interest-rate buydowns are key tools for expanding access to homeownership and creating opportunities for families to build generational wealth.
The FHLBanks will continue to play a vital role in unlocking new pathways to homeownership and housing affordability. Through their Affordable Housing Program (AHP) and voluntary funding initiatives, the FHLBanks provide grants that help bridge the affordability gap for homeownership—including first-time homebuyer grants, down payment assistance grants, home rehabilitation grants, and various other programs. Likewise, low-interest CICA (Community Investment Cash Advance) and CIP (Community Investment Program) advances and competitive AHP grants for affordable rental housing developers support the expansion of affordable rental housing supply—another pillar for affordable housing access.
There is no silver bullet to solve the housing affordability crisis, but the FHLBanks—working through their 6,400 member institutions and housing-partner networks across the country—will remain an integral part of the solution. By expanding access to funding, lowering barriers to entry, and helping increase housing supply, the FHLBanks help their members strengthen communities and bolster depositor and borrower confidence in uncertain economic times.
How do you assess the risk that a slower housing market could create secondary ripple effects (e.g., on community banks, housing-related credit, regional economies) in 2026?
In 2025, housing starts, home sales, and mortgage originations have held steady at low levels—roughly 1.3 million annual starts and 4 million existing-home sales—and 2026 will begin in a similar fashion. Mortgage volumes will likely remain muted, though refinancing could increase if interest rates move lower.
Home prices have flattened. The S&P CoreLogic Case-Shiller National Home Price Index (HPI) dipped below 2% year-over-year in June 2025, after having been elevated for nearly two years. Slower HPI appreciation is a mixed bag: it limits wealth gains by homeowners but increases affordability for prospective homeowners when HPI appreciation is below the growth in wages. Homebuyers lost significant ground from 2020 to 2023 as HPI growth outpaced wage growth. Nationally, prices are stable, but the national average masks a bifurcation in markets: HPI gains are continuing in some metros (Buffalo, NY; Rochester, NY) while declining in others (Cape Coral, FL; North Port, FL).
Meanwhile, the Federal Reserve is expected to continue to cut rates several more times over the next 12 months, helping normalize the yield curve, which has been U-shaped in 2025. A normal yield curve means healthy lending margins and increased capacity for community lenders to extend mortgage credit. If liquidity becomes tight, the FHLBanks will be there with counter-cyclical liquidity to ensure members have the funding they need to ensure homes are built, families find footing, and communities are positioned to prosper.
If you single out one critical housing market dynamic to watch in 2026, what would it be and why?
As we entered the fall of 2025, Mark Zandi at Moody’s Analytics reported that 49.2% of consumer spending was from the top 10% of income earners, the highest share going back to 1989. That concentration of spending reflects strong wealth effects among high-income households fueled by recent highs in the stock market, cryptocurrencies, and gold. A market downturn could quickly reverse those wealth effects, leading to a pullback in consumption and tightening credit conditions that would ripple through housing and mortgage markets. The timing of any such correction is inherently difficult to predict—Alan Greenspan’s 1996 warning about “irrational exuberance” came years before the eventual dotcom bust—but the warning signs are familiar. Today, with financial markets priced to perfection, inflation sticky, and the Federal Reserve contending with stagflation-like pressures, the economic backdrop is increasingly uneven: spending is being driven by those at the top, while lower-income households are struggling to keep pace. That imbalance makes the economy—and its feedback loop with housing—the most important dynamic to watch in 2026.
