The year began with Zillow anticipating a gradual recovery: 2026 would not be a typical market, but it represented progress toward normalcy, with projected sales growth of 4-5% although volume remained far below pre-pandemic levels. That projection held true early on: by the end of the first quarter, monthly sales had risen 5.5% compared to the prior year. However, the run-up in mortgage rates during the second quarter has interrupted that recovery. By May, year-over-year sales growth had fallen to 1.5%, and Zillow now estimates June sales will increase just 0.8%.
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Zillow now predicts that home values and existing home sales will remain nearly unchanged in 2026, with mortgage rates settling back to the mid-6% range. Growing inventory and sluggish sales activity should keep price appreciation in check. Buyers in many areas will still see prices rise, but the pace will allow incomes to gain ground more than in recent years.
Zillow's nowcast for sales counts indicates that existing home sales will reach 3.76 million in 2026, a decline from last month's estimate of 3.8 million. Higher mortgage rates and recent weakness in sales drive expectations for reduced market activity in the second half of the year.
Single-family rents are forecasted to climb 3.1% in 2026, and multifamily rents are predicted to rise 2%, according to Zillow. This offers some relief for tenants, as rent increases are below the long-term average in most regions.
The second quarter's rise in mortgage rates halted the earlier recovery. Zillow's earlier analysis of how higher energy prices might affect home sales suggested that the market's trajectory could be influenced by unpredictable reactions from buyers and sellers to shifting interest rates, leading some to rush in while others wait out the remainder of the season. These opposing forces probably offset each other, meaning the June sales figures due on July 7 will offer the first clear view of which direction the market is heading.
However, the second-quarter rise in mortgage rates - pushing the average 30-year fixed rate back toward 7% - dampened buyer enthusiasm and slowed momentum. Zillow's revised forecast reflects this setback, as the earlier expectation of 4-5% sales growth for 2026 has been replaced by a near-flat outlook. The combination of elevated rates, growing inventory, and cautious buyers suggests that the market will remain subdued through the end of the year, with any meaningful recovery pushed further into the future.
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