Housing Market Challenges Interiors Sector Amid 2026 Uncertainty

MILAN — “Imagine what our performance will look like in a robust housing market,” was the notion RH chief executive officer Gary Friedman pondered during the third-quarter conference call on Thursday.

Despite inflationary and tariff pressures and a decline in the purchase of new homes to furnish and decorate, top U.S. home brands persevered this year. Home and furniture giants like RH, Williams Sonoma and Arhaus posted positive third-quarter results. Williams Sonoma saw its third-quarter revenues hit a record of $1.88 billion, Arhaus saw its sales rise 8 percent to $345 million and RH posted a better-than-expected 9 percent increase in revenues to $884 million.

However, a report by TD Cowen predicted that the slower U.S. home sales in 2026 are likely to persist.

“The housing market is unlikely to achieve material progress despite our expectation of falling long-term rates,” the “Best Ideas” report, a compilation of TD Cowen analysts’ top investment recommendations for 2026, said. The investment bank and financial services firm said it expects U.S. mortgage rates to move lower to 5.5 percent and should help unlock more transactions “but will likely not be enough for a significant acceleration in activity.”

In December, Redfin, the real estate brokerage powered by Rocket, said that new listings of U.S. homes for sale fell 1.7 percent year-over-year during the four weeks ending Dec. 7, the biggest decline in over two years. In November, a report from Redfin said it expects existing-home sales to end the year roughly flat with 2024, which was the worst year for sales since 1995.

Across the United States, luxury furniture’s top market, sellers continue to outstrip buyers. “The increasing supply of existing homes will likely keep housing starts from accelerating in 2026 as well,” TD Cowen added.

Affordability, a Worsening Scenario

In the U.S., housing prices are disproportionate to incomes. According to Zillow, the average home price in the state of California, for example, is $754,304. According to the U.S. Census bureau, California’s median household income was around $96,334 to $100,600 for 2024. In the state of New York, median home prices were $502,060 according to Zillow. The median household income was $85,820 in 2024.

The national outcry for more affordable housing has emboldened emerging parties like the Democratic Socialists of America and became a defining political issue for Zohran Mamdani’s mayoral campaign in New York City, where the median home price is $793,963, according to Zillow.

In its recent report, U.S. Bank said affordability continues to challenge buyers as higher interest rates and elevated home prices push monthly payments upward. This pressure is expected to dampen demand, even as rising incomes and low unemployment help support confidence.

“Since the pandemic, home price appreciation has outpaced, making starter homes less attainable for many,” says Bill Merz, head of capital markets research at U.S. Bank Asset Management Group. “Meanwhile, high borrowing costs discourage homeowners from moving, since their monthly payment would likely rise, even for a similar property.”

Bracing for 2026

Brands agree that the housing market, in addition to continued tariff pressure, will continue to challenge their sales growth in 2026.

“There is still uncertainty. And the macro backdrop is a big part of it. When we take a big step back and you think about what’s going on with housing, housing is starting to show some signs of life, but it’s really, I’d say, coming from a weak perspective,” said Arhaus chief financial officer Michael Lee during the conference call with analysts on Nov. 8. Lee recognized that mortgages are starting to come down, but they’re still high.

“When we think about what drives volatility in our business, it’s the wealth effect in some regards as well. So really hard to predict at times,” Lee added.

Williams Sonoma sees its sales for 2025 rising, hinging, however on the fact that there are no major changes in the macro economic environment, interest rates or housing turnover.

“We expect full-year 2025 comps to be in the range of positive 2 percent to positive 5 percent, with total net revenues in the range of positive 0.5 percent to positive 3.5 percent… Our guide reflects the continued strength in our business, strong customer response to our product lineup, and continued traction across our growth initiatives,” Williams Sonoma chief executive officer Laura Albers said Nov. 19 during the firm’s conference call.

Across the Pond

In Europe, housing market woes and affordability concerns also persist.

According to real estate platform Idealista, the prices of homes in Milan are being driven by the Milan-Cortina 2026 Winter Olympics and ongoing urban regeneration projects. In third-quarter 2025, prices rose 0.8 percent quarter-on-quarter and 3.1 percent year-on-year.

In the U.K., total spend in the housing market is still significantly below the range recorded during the post-lockdown mini housing market boom, according to global real estate services firm Savills.

“Further interest rate cuts expected later this year are likely to broaden the pool of prospective buyers entering the market in 2026,” contended Lucian Cook, head of residential research at Savills. Borrowing in the U.K. is surging. In September, first-time buyers borrowed a record amount of 82.8 billion pounds of mortgage debt, up 30 percent, compared to a year earlier, according to analysis by Savills.

In December, however, real estate platform Rightmove said asking prices for newly listed homes across the U.K. fell by 1.8 percent in the four weeks to Dec. 6, to 358,138 pounds. It also fell 1.8 percent in November, spurring hopes that the number of home sales would increase.

In conclusion, TD Cowen said other macro concerns include the continued depreciation of the U.S. dollar. The Federal Reserve is likely to continue cutting interest rates though other G10 central banks are likely done trimming their rates, the report said.

“2026 may turn out to be a lot like 2025, with U.S. and ex-U.S.growth roughly matching this year’s
rates, U.S. 10yr yields falling another 40-50bps, and a continued depreciation of the USD… Upside risks are to inflation, downside risks to growth,” the report said.