As the year ends, how are consumers—such as potential homebuyers—feeling about the market going into 2026? Per the latest findings from the University of Michigan’s monthly Consumer Sentiment report, sentiment was slightly improved in December compared to November, confirming the sentiment trajectory from the University of Michigan’s preliminary report earlier this month.
Compared to November 2025, the consumer sentiment index increased slightly from a 51 reading to a 52.9 in December. It is worth noting, though, that a reading on the index below 100 is considered below average; the December 2025 reading is also noticeably lower than a year prior, in December 2024, when it came in at a reading of 74. The report also noted that gains were concentrated among lower-income consumers; there was little change among high-income consumers.
The index of current economic conditions, measuring how consumers feel about the current economy, also trickled down month over month, from a 51.1 reading to a 50.4. However, the greatest improvement came in the index of consumer expectations, measuring how consumers expect the economy to change; that index’s reading moved up month-over-month from 51 to 54.6.
UMich’s Surveys of Consumers Director Joanne Hsu said in summation that: “Despite some signs of improvement to close out the year, sentiment remains nearly 30% below December 2024, as pocketbook issues continue to dominate consumer views of the economy.”
Hsu’s included commentary also noted that consumers’ year-ahead inflation expectations reached their lowest point in 11 months at 4.2%. The latest inflation reading seen in the Bureau of Labor Statistics’ Consumer Price Index did show inflation slightly down in November. This change in year-ahead inflation expectations marks the fourth consecutive monthly decline, though the expectations remain above the 3.3% reported in January. As for the labor market, 63% of consumers expect unemployment will continue to rise next year.
Inflation and the labor market are two primary factors that the Federal Reserve must consider in setting monetary policy, as the central bank’s dual mandate is for price stability and maximum employment. The Fed’s recent rate cuts, including the quarter basis point one earlier this month, have been attributed to concerns about the labor market despite inflation inching up away from the Fed’s 2% annual growth goal.
If the labor market continues to shed jobs during 2026, and inflation stays under control, then that could incentivize more rate cuts, which in turn could bring down mortgage rates. Mortgage applications actually decreased after the most recent rate cut due to a feeling that the December rate cut would be the last cut for a while. Fed Governor Stephen Miran has also predicted a slow in housing price inflation.
However, rates alone aren’t the only factor to consider in forecasting 2026 home-buying. Fed Governor Christopher Waller, a proponent of further rate cuts, has said that if unemployment grows, then that will disincentivize potential homebuyers (who may be concerned about losing their own job) even with lower interest, and thus likely mortgage, rates.
For the full consumer sentiment survey, click here.
