Zillow Forecasts Major Housing Affordability Shift Through 2026

Mortgage Rates Expected to Drop Further

Real estate giant Zillow has released new analysis predicting significant changes in the housing market through 2026, with mortgage rates expected to fall further, unlocking additional buying power for home shoppers . The company's latest research indicates that 30-year fixed-rate mortgages have already dropped to 5.98%, marking the first time in three and a half years that rates have fallen into the 5% range .

This downward trend represents a dramatic shift from recent years. Mortgage rates averaged 6.87% a year ago compared to current levels around 6.09%, with 15-year rates falling from 6.09% to 5.44% . The decline has created immediate financial relief for homebuyers, with monthly mortgage payments now 8.4% lower than they were last year .

Industry experts believe this trend has staying power. Current downward movement shows more signs of lasting mortgage rate health compared to other recent drops , suggesting the relief isn't temporary.

Buying Power Increases Dramatically

The mortgage rate decline has translated into substantial gains in purchasing power for American families. A median-income household can now afford a $331,483 home, representing a $30,302 improvement since last year and the highest affordable price since March 2022 . This expansion means roughly 82,300 more homes have come into budget for median-income households compared to a year ago .

Zillow's affordability projections extend well into 2026. The mortgage payment for a typical home should be affordable in 20 of the nation's 50 largest metros by December 2026, the most since 2022 . Major metropolitan areas like Chicago, Atlanta, and Raleigh are expected to join the affordable list.

The improvement stems from multiple converging factors. Modest home-price gains, declining mortgage rates, and higher household incomes will together help make housing more affordable across the country . This represents what Zillow economists call "a small-wins year for housing" .

Market Predictions Through 2026

Despite the positive affordability trends, Zillow maintains realistic expectations about mortgage rates. The company is willing to put itself on record that mortgage rates are unlikely to fall below 6% in 2026 . However, gradual rate moderation should help more buyers reenter the market and support modest price growth .

Home sales are expected to recover modestly. Zillow forecasts 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 pent-up demand that should start to release as affordability improves .

Price appreciation will remain subdued compared to recent boom years. Home values are forecasted to grow 1.2% in 2026 after national values were roughly flat in 2025 , creating a more balanced market environment.

Long-Term Housing Market Reset

The changes represent what some economists are calling a fundamental market reset. This yearslong trend toward gradual increases in home sales and normalization of prices marks the first time since the 2008 financial crisis that incomes will rise faster than home prices for a prolonged period .

The rental market will also see relief. Rent affordability is expected to continue improving after a year in which 37 of the 50 biggest markets saw incomes grow faster than rents, with median-income households now spending 27.2% of income on typical rent .

While challenges remain significant for many potential buyers, the convergence of falling mortgage rates, rising incomes, and stabilizing home prices suggests 2026 could mark a turning point toward greater housing accessibility. The market appears to be shifting from the extreme conditions of recent years toward a more sustainable balance between supply, demand, and affordability.