If you’ve been sitting on the sidelines waiting for mortgage rates to plunge back into the 4% or 5% range, Zillow economists have a message that might sting: it’s not happening.
The latest 2026 housing forecast from the real estate giant delivers a reality check for rate dreamers while simultaneously opening the door for strategic buyers ready to move now.
The Hard Truth About Mortgage Rates
Let’s rip off the band-aid. Zillow’s economists are willing to go on record with a bold prediction: mortgage rates are unlikely to fall below 6% in 2026. For context, the average 30-year fixed rate currently hovers around 6.19%, down from nearly 7% at the start of 2025.
Why is Zillow so confident about this ceiling? The firm points to its track record in accurately predicting shelter inflation, which accounts for 40% of the consumer price index.
While rates may continue their gradual descent from pandemic-era highs, those nostalgic for 3% mortgages need to adjust their expectations.
The takeaway for buyers: if you’re waiting for rates to drop significantly before making your move, you’re likely to be waiting indefinitely.
The window of opportunity isn’t about chasing lower rates—it’s about capitalizing on the improved affordability that’s already here.
The Affordability Equation Is Finally Shifting
Here’s where the forecast gets interesting for smart buyers. While rates may disappoint, affordability has reached its best point in three years. Borrowers have already experienced some relief this year, with affordability improving to a three-year high.
The math works like this: even with rates holding above 6%, gradual moderation combined with relatively flat price growth creates buying power.
Home values remained essentially stagnant throughout 2025, giving incomes time to catch up.
Zillow forecasts home values will grow just 1.2% in 2026—modest enough that it won’t erase recent affordability gains.
Translation: buyers who act now can lock in properties before values start climbing again, even if mortgage rates don’t drop dramatically.
The Market Is Waking Up From Its Slumber
Zillow projects 4.26 million existing home sales in 2026, representing a 4.3% increase over 2025. That might sound underwhelming, but it signals an important shift: years of pent-up demand are beginning to release.
The late 2025 fall selling season already hinted at this momentum. Typically a slow period, October defied seasonal norms with both new listings and pending sales jumping 5% year-over-year.
Buyers and sellers are returning to the market, creating more opportunities and reducing the extreme competition that defined the pandemic era.
For buyers, this means more inventory to choose from and less likelihood of bidding wars. For sellers, it signals renewed demand and price stability after a year when half of the nation’s largest metro areas saw declining values.
Fewer Homeowners Will Be Underwater
One of 2025’s most sobering statistics: home values fell in 24 of the 50 largest markets as of October. That left many recent buyers with homes worth less than they paid, effectively trapping them.
The 2026 forecast brings relief. Zillow expects that number to be cut in half to just 12 major markets next year.
Stabilizing and rising prices mean homeowners can start building equity again rather than watching it evaporate.
This matters for the entire market ecosystem—when fewer people are underwater, more listings become possible, creating healthier inventory levels.
Construction Hits the Brakes (And That Matters)
Here’s a subplot that could impact prices more than forecasters expect: new construction is slowing dramatically.
Single-family housing starts are trending 5% below last year’s pace, and a further 2% decline in 2026 would push activity below 2023 levels—the lowest point since the pandemic began.
Builders are pulling back because there’s already significant inventory of newly completed homes sitting on the market.
They’re leaning heavily on incentives like mortgage rate buydowns to move existing inventory rather than breaking ground on new projects.
For buyers, this creates opportunity in the near term—builders desperate to clear inventory may offer attractive deals. But it also means less new supply coming online in future years, which could tighten inventory and support higher prices down the road.
Renters Get a Rare Win
While homebuyers navigate their decision, renters are catching a significant break. Multifamily rents are forecast to rise just 0.3% in 2026, essentially flat. Meanwhile, incomes continue growing, further improving rent affordability.
As of October, median-income households were spending 27.2% of earnings on rent—the lowest share since August 2021. This trend is expected to continue, with incomes outpacing rent growth in most major markets.
Interestingly, single-family rents are projected to climb 2.3% as many buyers delay home purchases.
The divergence highlights a key opportunity cost: those who keep renting single-family homes while waiting for perfect mortgage rates may watch their rental costs rise while missing the chance to lock in fixed housing payments through homeownership.
What Smart Buyers Should Do Now
The Zillow forecast paints a clear picture: 2026 won’t be a year of dramatic market shifts. No rate crash. No price surge. Just steady, gradual improvement in market health.
Smart buyers recognize this as precisely the environment to act in. When everyone is waiting for dramatic changes, opportunity exists in the mundane middle. Here’s what positioning yourself well looks like:
Lock in affordability while it exists. Three-year highs in affordability don’t come around often. With rates unlikely to drop below 6% and prices beginning to climb again, current conditions may represent the sweet spot.
Shop the new construction incentives. Builders sitting on inventory are motivated. Rate buydowns, closing cost assistance, and upgrades are all on the table. These deals may evaporate as builders slow new starts and existing inventory gets absorbed.
Stop timing the market. The data suggests there’s no dramatic inflection point coming. Mortgage rates above 6% and modest price growth appear to be the new normal. Buyers who accept this reality and focus on their personal financial readiness will fare better than those perpetually waiting for perfect conditions.
Consider the equity-building opportunity. With home values stabilizing and beginning to grow again, buying now means you start building equity immediately rather than watching from the sidelines as prices appreciate, even if modestly.
The Bottom Line
Zillow’s 2026 forecast won’t thrill anyone hoping for a return to pandemic-era ultra-low rates. But for buyers willing to work within reality rather than chase fantasy, the outlook is actually quite favorable.
Mortgage rates are settling into a sustainable range above 6%. Home prices are growing modestly rather than explosively. Inventory is improving. Affordability has recovered to multi-year highs.
These aren’t headline-grabbing developments, but they create an environment where smart, prepared buyers can succeed.
The dream of 3% mortgages and unlimited inventory at rock-bottom prices? That’s dead. But the opportunity to purchase a home under favorable conditions and start building wealth through real estate? That’s very much alive for those ready to act.
The choice is simple: keep dreaming about rates that aren’t coming, or capitalize on the improved affordability that’s already here. Smart buyers know which path makes more sense.
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