Zillow shares bold prediction for mortgage rates

The 30-year fixed mortgage rate average in the U.S. began 2025 at 6.93% on Jan. 9, according to the Federal Reserve Bank of St. Louis (FRED).

On Dec. 4, 2025 FRED reported that the mortgage rate had fallen to 6.19%.

Real estate technology company Zillow, while acknowledging that forecasting mortgage rates a year out is difficult, made a bold prediction for 2026.

"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," Zillow wrote on Dec. 4. "Because of that, Zillow economists are willing to put themselves on the record."

"Mortgage rates are unlikely to fall below 6% in 2026," Zillow predicted.

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Recognizing that borrowers have already experienced some relief in 2025, the company reported that affordability was pushed 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," Zillow wrote.

Zillow predicts rise in home sales

Here are some other important predictions for the housing market in 2026, according to Zillow, including an increase in home sales.

• Housing prices are expected to climb by 1.2% in 2026, while the count of large markets experiencing yearly price drops is anticipated to shrink from 24 in October to 12 in the coming year.
• Zillow estimates that 4.26 million existing homes will be sold in 2026, representing a 4.3% rise compared to 2025, driven by better affordability and renewed buyer interest.
• Rental affordability is projected to get better in 2026, with multifamily rents holding steady, increasing only 0.3%.

Zillow forecasts home value increase

After a year marked by incremental progress for buyers — with minor affordability improvements and favorable conditions in 19 large metropolitan areas — both buyers and sellers are likely to see a moderate increase in property values and a slight uptick in transactions.

"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."

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After being generally flat in 2025, Zillow economists explain their expectation of home value growth in 2026.

"Next year's forecast reflects expectations of gradually improving affordability and steady buyer demand," Zillow wrote. "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.

Freddie Mac reports lower mortgage rates

Mortgage rates were also reported as lower on Dec. 4 by government-sponsored enterprise Freddie Mac.

“Mortgage rates decreased for the second straight week as we emerged from the Thanksgiving holiday,” said Freddie Mac chief economist Sam Khater. “Compared to this time last year, mortgage rates are half a percent lower, creating a more favorable environment for homebuyers and homeowners.”

According to Freddie Mac:

• The 30-year FRM (fixed-rate mortgage) averaged 6.19% as of December 4, 2025, down from last week when it averaged 6.23%. A year ago at this time, the 30-year FRM averaged 6.69%.
• The 15-year FRM averaged 5.44%, down from last week when it averaged 5.51%. A year ago at this time, the 15-year FRM averaged 5.96%.

Zillow predicts slow year for home construction

Next year is projected to be the least active year for new single-family housing starts since 2019, coming on the heels of a sluggish 2025, Zillow reported.

With a significant inventory of recently completed homes and many more still being built, developers are anticipated to scale back on initiating additional projects.

"Single-family starts are trending 5% below last year's pace, as of the latest reading in August," Zillow explained. "A further 2% drop from 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."

Zillow forecasts improved rental affordability

• Rental affordability is anticipated to keep getting better across much of the nation, following a year when incomes outpaced rent growth in 37 of the 50 largest housing markets, according to Zillow.
• As of October, a household earning the median income would allocate 27.2% of earnings toward the average U.S. rent, the smallest share recorded since August 2021.
• Zillow expects multifamily rents to remain nearly unchanged in 2026, rising only 0.3%, which should allow wages to narrow the gap further.
• Single-family rents, however, are projected to increase by 2.3% as many prospective buyers postpone purchasing homes.

Related: Zillow raises red flag on homes, mortgage rates