Housing Recovery Stalls as Rents Rise and Home Sales Slow in Late 2026

The housing market is facing another setback as 2026 draws to a close. According to Zillow’s latest forecast, existing home sales are expected to decline 3.5% year-over-year in the fourth quarter, while rental prices continue to climb.

Despite the slowdown, total existing home sales are still projected to finish 2026 approximately 1.2% higher than in 2025. However, elevated mortgage rates, inflation, and rising costs are keeping many prospective buyers on the sidelines.

Housing Inventory Continues to Grow

One significant change is the growing number of homes available for sale. Housing inventory is expected to increase 10.1% year-over-year in the fourth quarter, more than twice the growth rate recorded at the beginning of 2026.

This increase is giving buyers more options and greater negotiating power, particularly as more sellers begin reducing asking prices.

Rental Prices Continue to Rise

Meanwhile, the rental market is gaining momentum. Zillow now projects multifamily rents will rise 2.1% year-over-year in the fourth quarter, compared with its previous forecast of 1.9%.

The shift represents a dramatic change from expectations earlier this year. At the start of 2026, mortgage rates were projected to reach approximately 6.07% by the fourth quarter, with existing home sales expected to increase 4.7% and rents rising just 0.3%.

Higher energy prices and persistent inflation have since changed that outlook.

Mortgage Rates Remain a Major Obstacle

Millions of homeowners currently have mortgage rates below 4%, making them hesitant to sell their properties and take on new loans at rates closer to 6.5%.

Although this so-called mortgage rate lock-in effect is gradually easing, it continues to limit housing activity.

Still, the market is showing signs of becoming more balanced. Housing supply has increased to approximately 4.5 months, giving buyers additional choices while helping ease some of the intense competition experienced in previous years.

Demand also remains supported by millennials and older members of Generation Z entering their prime home-buying years.

What This Means for Buyers and Renters

For prospective buyers who can comfortably afford today’s mortgage rates, increased inventory and more frequent price reductions may create opportunities. Buyers could also consider refinancing if borrowing costs eventually decline.

For others, renting may remain the more practical financial decision, providing additional time to save for a future purchase.

Although the housing recovery has slowed, the latest projections suggest a market gradually moving toward balance rather than a widespread collapse in home prices.

As 2026 comes to an end, buyers may find more opportunities, even as affordability remains one of the housing market’s biggest challenges.