Zillow expects calmer 2026 housing market, improved affordability

Zillow says the housing market is on track for a steadier 2026, with modest price growth, slightly higher sales and mortgage rates that remain above 6%.

The forecast follows what analysts describe as a year of small but meaningful gains for homebuyers — including improved affordability and more buyer-friendly conditions in nearly 20 major metro areas.

“The housing market is finally settling into a healthier state, with buyers and sellers starting to return,” said Mischa Fisher, chief economist at Zillow. “Buyers are benefiting from more inventory and improved affordability, while sellers are seeing price stability and more consistent demand. Each group should have a bit more breathing room in 2026.”

Zillow projects U.S. home values will increase 1.2% in 2026 after a flat 2025.

Stabilizing prices should reduce the number of homeowners whose property values fall below their purchase price. Home values declined in 24 of the 50 largest markets analyzed by Zillow in 2025, as of October.

Zillow forecasts that number will drop to 12 in 2026.

Mortgage rates, home sales

The real estate portal expects mortgage rates to stay above 6% through next year.

The company says its accuracy in forecasting shelter inflation — a major component of consumer inflation — gives it confidence in that outlook.

Modest rate relief this year improved affordability to the best level in three years, and economists expect gradual easing to draw more buyers back even if pandemic-era lows are unlikely to return.

Zillow forecasts 4.26 million existing home sales in 2026 — up 4.3% from this year’s projected total.

Analysts said years of limited inventory and high borrowing costs have created pent-up demand that could begin to release as affordability improves.

New construction, relief for renters

Economists expect 2026 to be the weakest year for single-family housing starts since 2019, after a sluggish 2025.

A large supply of newly built homes already on the market, along with projects still underway, is prompting builders to hold back on new starts.

Single-family starts were running 5% below last year’s pace as of August. An additional 2% decline next year would push activity below 2023 levels, Zillow added.

Builders are expected to continue offering incentives, including mortgage-rate buydowns — particularly in markets where affordability remains tight.

Rent affordability is expected to improve in most major metros after a year in which incomes outpaced rent growth in 37 of the 50 largest markets.

Zillow projects multifamily rents will rise 0.3% in 2026, while single-family rents will climb 2.3% as some would-be buyers delay purchases.

New York City remains an exception. StreetEasy economists expect rent growth there to accelerate — contrary to national trends.

Lifestyle renters expected to grow

Zillow expects more renters to remain renters by choice.

Nearly three in five renters said they plan to continue renting next year, according to the firm’s consumer survey.

Even if mortgage rates were to drop, only 37% said they would buy — down from 45% a year earlier.

Parents are playing a larger role in shaping rental demand. Thirty-seven percent of renters now have a child under 18 at home, up from 33% last year.

With families making up a significant share of apartment hunters, analysts expect more demand for buildings with child-friendly amenities.

StreetEasy analysts say communal spaces will continue to define New York City’s rental market in 2026.

Home efficiency and AI

Rising household costs are pushing buyers toward homes with energy-efficient and cost-saving features — including zero-energy-ready designs, whole-home batteries and electric vehicle charging setups.

Zillow expects growing demand for “grocery-optimized” homes, with features such as walk-in pantries, garage cold storage and refrigerated drawers.

AI tools are projected to move beyond basic assistance and begin coordinating transaction steps — from connecting consumers with agents to scheduling tours and helping prepare for negotiations and closing.

Analysts said that shift could make transactions feel smoother and more predictable for buyers, sellers and renters.