Zillow Economists Predict Housing Market Warm-Up While New Construction Lags

The housing market should settle into a healthier state in 2026, with buyers seeing a bit more breathing room and sellers benefitting from price stability and more consistent demand, according to new analysis from Zillow.

On the heels of a year of small wins for home buyers—slight affordability gains and buyer-friendly conditions in 19 major markets—home buyers and sellers can expect a modest rise in home values, a few more sales and mortgage rates holding above 6%. Many apartment renters should look forward to some affordability relief, as well.

Below are a few takeaways from Zillow’s report:

Home Values Will Rise Modestly
U.S. home values are forecasted to grow 1.2% in 2026 after national values were roughly flat in 2025. Next year’s forecast reflects expectations of gradually improving affordability and steady buyer demand. Mortgage costs should ease a bit in 2026, helping more buyers stay in the market and supporting modest price growth in many parts of the country.

Fewer Owners Will Be Underwater as Prices Firm Up
With home values expected to rise in most major markets, fewer homeowners will see their Zestimate fall below what they paid for their home. This stands in contrast to 2025, when home values have fallen in 24 of the 50 largest markets, as of October — a number Zillow forecasts will be cut in half to 12 major markets next year. Stabilizing prices means more homeowners will continue building equity rather than losing it, at least on paper.

Mortgage Rates Will Hold Above 6%
Even for the experts, foreseeing mortgage rates a year out is about as difficult as predicting next year’s weather forecast. However, mortgage rates are shaped in part by inflation, and Zillow has been accurately predicting shelter inflation, which makes up 40% of the consumer price index.

Because of that, we are willing to put ourselves on the record: Mortgage rates are unlikely to fall below 6% in 2026. Borrowers have already seen some relief this year, pushing affordability to a three-year best. Gradual rate moderation should help more buyers reenter the market, even if ultralow pandemic-era rates remain far out of reach.

Existing Home Sales Will Climb Slightly
Zillow’s forecast calls for 4.26 million existing home sales in 2026, a 4.3% increase from this year’s projected total. Years of limited inventory and high mortgage rates have created a pent-up demand to move that should start to release as affordability improves. A stronger-than-expected fall season has hinted at what’s possible this spring if recent affordability gains persist.

New Construction Will See Its Weakest Year Since Before the Pandemic
2026 is shaping up to be the slowest year for single-family home construction starts since 2019, following a notably weak year in 2025. Because there’s a large stock of new homes already built and others still under construction, builders are expected to hold back on starting new projects.

Single-family starts are trending 5% below last year’s pace, as of the latest reading in August. A further 2% drop off of that pace in 2026 would bring starts below the roughly 947,000 homes begun in 2023, currently the low-water mark since the start of the pandemic. Expect builders to continue leaning heavily on incentives such as rate buydowns to keep inventory moving, particularly in markets where affordability remains tight.