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For the average person, figuring out how to navigate housing can be an arduous and confusing process. Since at least 2020, housing prices and affordability have  fluctuated significantly, according to the National Association of Realtors. Within Minnesota’s housing market, the median price sits around $335,000 for a four-bedroom home.

St. Olaf College Assistant Professor of Economics Naafey Sardar provides insight on how to navigate this year’s housing market.

At present, what factors contribute most to making homes affordable? 

The two key determinants of housing affordability are the price of homes and the mortgage rates. While home prices have only recently begun to decline marginally as supply starts to exceed demand, mortgage rates have broadly trended downward since June of 2025. Lower mortgage rates mean a lower monthly mortgage payment for buyers. Right now, declining mortgage rates are the primary driver of improved affordability.

For 2026, are mortgage rates expected to rise or fall? What about housing prices overall?

The outlook for housing prices in 2026 appears somewhat favorable for buyers. Most forecasts suggest that home prices will marginally decline, as supply continues to outpace demand. As for mortgage rates, a month ago I would have said that they were more likely to fall in 2026. However, the recent uptick in oil prices due to geopolitical uncertainty could put upward pressure on inflation. If the inflation rate remains high, the Federal Reserve may be less inclined to cut interest rates further. As a result, mortgage rates will likely remain close to their current levels throughout 2026 if the status quo prevails. 

For the average person, how do they determine whether renting or purchasing a property is right for them?

For most people, the decision between renting and purchasing a property depends on financial circumstances and time horizon—the total length of time an investment is planned to be utilized. Buying a home makes more sense for individuals who expect to stay in the same location for several years, have a stable income, and can afford upfront costs such as a down payment and closing fees. Renting, on the other hand, offers greater flexibility in terms of moving around and allows people to avoid recurring maintenance costs. The New York Times offers a useful tool that helps individuals evaluate whether renting or buying makes more sense financially. I would recommend prospective homebuyers to experiment with it when considering their options.

Currently, we are shifting towards a buyer’s market. Could you explain what this means?

A buyer’s market means that the supply of homes on the market exceeds the demand for them. Since there are more sellers than buyers, buyers are able to enjoy greater bargaining power while negotiating home prices. In such circumstances, prices tend to either fall or grow more modestly, as homes remain on the market for longer. There is evidence this shift is already underway, according to the real estate brokerage firm, Redfin. They calculated that Minnesota home prices were down 2 percent in February 2026, in comparison to the same month last year. Additionally, the number of homes for sale rose 3.5 percent over the same period.

How does your work support St. Olaf students in understanding the economics and policies that impact housing affordability? 

One of the biggest determinants of housing affordability is the mortgage rate. I help St. Olaf students understand how economic forces impact housing affordability through my “Money and Banking” course. In this course, students learn how interest rates are determined and the role the Federal Reserve plays in shaping borrowing costs across the economy. We discuss how changes in interest rates influence mortgage payments and the ability of households to purchase homes. Students also learn that the Federal Reserve considers the state of the housing market when designing interest rate policy, as housing represents a significant share of U.S. household wealth –– $55.1 trillion, according to Zillow. 

About Naafey Sardar

Assistant Professor of Economics Naafey Sardar teaches a variety of classes at St. Olaf focused on the banking industry and econometrics, including the application of statistical methods to analyze economic data and understand how different data points relate to one another. His research expertise and interests include macroeconomics, energy economics, and applied time series econometrics.

Prior to St. Olaf, Naafey worked at the Central Bank of Pakistan and Texas A&M University-San Antonio, where he researched the oil supply market, the relationship between social media and the stock market, and the impact of climate change on agricultural stock prices.