Forecasters trim home price growth predictions as inflation bites

Midyear forecasts expect home prices to slowly tick up this year, as mortgage rates and inflation remain elevated.

Realtor.com's latest forecast projects prices will grow 1.2% in 2026, lower than its original estimate of 2.2% and well below the current pace of inflation, meaning home values are declining in real terms. Veros Real Estate Solutions' second quarter forecast also predicted prices will rise 1.1% over the next 12 months.

"Against a backdrop of both familiar and new challenges, the economy has proved resilient," said Danielle Hale, chief economist at Realtor.com, in a press release Wednesday. "As a result, the first half of 2026 delivered stability more than momentum in the housing market."

The biggest surprise of 2026 has been that the housing market has held its ground, Veros said in a press release. Both reports pointed to the Iran war and inflation, which reached a three-year high of 4.2% in May, as major inflection points in the economy, yet borrowing costs were below last year's level and housing demand modestly outperformed 2025.

Realtor.com's mortgage rate projection has not changed from 6.3%, as inflation and economic resilience offset the lower-than-expected rates, which dipped below 6%, seen in the first two months of the year.

Markets priced in one to two rate cuts by December before the war with Iran began in late February, and now expect one to two hikes instead. But the 10-year Treasury yield has held between 4% and 4.5%, setting up mortgage rates to finish the year in the 6%-6.5% range, according to Realtor.com.

Affordability improved as a result of a steady mortgage rate outlook and softened price growth expectations. The average monthly payment is now projected to finish 2026 1.9% below last year's, lower than the 1.3% drop in the original forecast. With inflation outpacing home-price growth, housing costs are effectively shrinking relative to other expenses, Realtor.com found.

"The housing market is inching forward as sellers reset expectations, price growth cools and buyers gain more negotiating power," Hale said. "Looking ahead, we expect momentum to build through the second half of the year as more sidelined buyers and sellers find terms that work for both sides." 

Home sales are forecasted for year-over-year improvement of 1% to 4.1 million, slightly lower than the original projection of 4.13 million. Existing-home sales fell behind the 2025 pace in the first three months of the year, even as rates initially declined. But when rates spiked, sales surprisingly steadied in April and rose in May, as sales are now up 0.2% compared to last year, according to Realtor.com.

"Buyers and sellers have shown a lot of staying power this year," Hale said. "This is a market where people are adjusting and showing up rather than giving up. Sellers are meeting the market with more realistic asking prices, which is helping deals get done."

Which markets are performing the strongest?

Several markets in the Northeast and Midwest are outperforming the national average, as buyers are placing importance on affordability.

Manchester-Nashua, New Hampshire, Rochester, New York, South Bend-Mishawaka, Indiana-Michigan, and Rockford, Illinois, were all forecasted to see price growth of at least 4% over the next 12 months, Veros reported.

Multiple Sun Belt markets have seen the opposite. Of the 300 markets evaluated, Veros expects Cape Coral-Fort Myers, Florida, to see the largest price drop at -2.7%, followed by Austin-Round Rock-San Marcos, Texas, at -1.7% Monroe, Louisiana, at -1.4% and Corpus Christi, Texas, at -1.1%.