Zillow’s latest forecast indicates a minor decrease in home prices over the next 12 months. (Illustrative AI-generated image).
- Zillow’s latest forecast predicts a 0.2% decrease in U.S. home prices over the next 12 months, a shift from earlier expectations of growth.
- This downgrade reflects a continued cooling of the housing market following the rapid price increases seen during the pandemic.
- The projected national price dip is modest, suggesting a market correction or “soft landing” rather than a significant crash.
- Homeowners are generally protected by equity gained during the boom, but recent buyers in overheated markets may face challenges.
- Potential buyers might see slightly more affordable prices, but high mortgage rates continue to impact overall affordability.
- Regional markets will vary, with areas that saw the biggest pandemic-era gains potentially experiencing larger price declines.
Zillow now predicts U.S. home prices will dip by 0.2% over the next 12 months. This is a small but notable shift from its earlier forecasts, which anticipated growth. The Zillow home price forecast downgrade signals a further cooling of the housing market.
In May 2026, Zillow economists released their updated 12-month outlook. They project that the Zillow Home Value Index, a measure of typical home prices nationwide, will fall 0.2% between May 2026 and May 2027. This forecast is a downgrade from the April prediction of a 0.1% gain and a significant step down from the March forecast of a 0.5% increase.
While the percentage change is small, the direction indicates a cooling housing market after the explosive price gains seen during the pandemic. This shift raises questions for homeowners and potential buyers about future market trends.
The forecast encompasses over 400 U.S. housing markets, including major metropolitan areas, smaller cities, and suburban regions. Individual market performance will vary, with some potentially seeing stable or slightly rising prices, while others may experience more significant drops.
Zillow’s Forecast Shift: From Growth to Decline
The Zillow Home Value Index (ZHVI) measures typical home values, aiming to represent the middle of the market. As of June 2026, the ZHVI shows a year-over-year home price increase of 0.8%, a stark contrast to the double-digit gains seen during the pandemic boom.
Zillow’s forecasts have shown a clear downward trend:
| Forecast Month |
Predicted 12-Month Change |
| March 2026 |
+0.5% |
| April 2026 |
+0.1% |
| May 2026 |
-0.2% |
This downward slide over two months, from expecting modest growth to predicting a slight decline, is significant. A 0.2% national drop is not a market crash, but it represents a reversal after years of price increases. As a widely watched housing data source, Zillow’s changing outlook can influence market psychology.
Impact of the Zillow Home Price Forecast Downgrade
For most homeowners, a 0.2% price dip is unlikely to cause concern, as significant equity has been built up over recent years. However, homeowners who purchased at market peaks in 2022 or 2023, particularly in rapidly appreciating cities, might see their home values fall below their purchase price, potentially becoming “underwater” on their mortgage.
For potential buyers, the news offers a mixed outlook. Lower prices could improve affordability for some renters. However, persistently high mortgage rates mean that overall monthly payments may not decrease significantly, even with a slight dip in home prices. First-time buyers face the challenge of balancing slightly lower prices with high borrowing costs and limited inventory.
Zillow’s forecast suggests a “soft landing” rather than a market collapse, with a modest national decline. However, individual markets could experience more substantial price drops ranging from 1% to 3% or more, while others might remain flat or see slight increases.
Understanding the Cooling Market: Post-Boom Correction
The current market cooling follows an extraordinary housing boom during the COVID-19 pandemic. Driven by low mortgage rates, remote work, and limited supply, national home prices surged by approximately 40% from early 2020 to mid-2022.
The Federal Reserve’s interest rate hikes to combat inflation led to a sharp increase in mortgage rates, slowing market activity and price growth. The market has been cooling for a couple of years, with price growth slowing to a crawl.
This period is characterized as a gradual correction, adjusting prices from unsustainable highs to more normal levels, rather than a repeat of the 2008 housing crash. Lending standards are stricter, and there is no glut of unsold new homes; overall housing supply remains relatively low.
Factors Influencing Future Home Price Outlook
Forecasts are subject to change based on several key factors. Mortgage rates are the most significant influence; a drop could boost demand and prices, while a spike could further depress them.
The job market also plays a crucial role. Low unemployment and wage growth support housing demand, while a recession and job losses could reduce it. Inventory levels are another critical factor; rising inventory gives buyers more choices and can lead to price reductions, while a sharp drop in listings could increase competition.
Investor activity is a wild card. If institutional investors begin selling properties, it could increase supply and lower prices. Conversely, continued buying activity would support prices.
Regional Variations in the Housing Market
Zillow’s national forecast masks significant local variations. Markets that experienced the largest price gains during the boom, such as those in the Sun Belt (e.g., Austin, Phoenix, Las Vegas), are at higher risk of price declines. Cities that saw rapid growth due to pandemic-related migration may cool more quickly.
More affordable markets or those with more moderate price growth, like many in the Midwest and Northeast (e.g., Cleveland, Buffalo), may hold up better or see smaller declines. Expensive coastal cities with strong economies, such as New York and Los Angeles, have already seen some price adjustments and may experience less volatility.
Homeowners and buyers should focus on local market data, as neighborhood-specific factors like school quality or job growth can influence trends independently of national headlines.
Affordability Improvements and Market Stability
Despite the forecast for a slight price dip, some experts highlight improving affordability as a positive sign. Wage growth, currently around 3.5% annually, is outpacing home price growth (0.8%), gradually increasing purchasing power for potential buyers.
An increase in the number of homes for sale in many areas provides buyers with more options and reduces bidding pressure. This trend could accelerate if sellers become more motivated to list their homes.
Experts emphasize that the market is correcting, not collapsing, and the 0.2% national dip is minor, unlikely to trigger widespread foreclosures or a banking crisis. The current phase suggests a gentle correction, though economic downturns could deepen it. The Zillow home price forecast downgrade indicates a new, more stable phase for the housing market after the pandemic boom.
Frequently Asked Questions
What is Zillow's new home price forecast?
Zillow now predicts that U.S. home prices will dip by 0.2% over the next 12 months, from May 2026 to May 2027. This is a downgrade from their previous forecast which anticipated slight growth.
Why are home prices predicted to fall slightly?
The slight predicted fall is part of a broader cooling trend in the housing market after the rapid price appreciation during the pandemic. Factors like higher mortgage rates and a return to more normal market conditions are contributing to this slowdown.
Will this Zillow home price forecast downgrade cause a housing crash?
No, experts do not believe this forecast indicates a crash. A 0.2% national decline is considered a modest correction or a "soft landing." The market fundamentals are different from the 2008 crisis, with stricter lending and lower overall inventory.
How will this affect homeowners?
Most homeowners are unlikely to be significantly impacted due to the equity built up from recent price appreciation. However, those who bought at the peak of the market in 2022 or 2023 might see their home values dip below their purchase price.
What does this mean for potential homebuyers?
The forecast suggests slightly more affordable prices, which could be an opportunity for some buyers. However, high mortgage rates remain a significant factor, meaning overall monthly payments may not decrease substantially.
Will all housing markets see prices fall?
No, the forecast predicts significant variation by market. Areas that experienced the largest price surges during the pandemic, particularly in the Sun Belt, are more likely to see declines, while other markets may remain stable or see minor gains.
Is housing affordability improving?
Yes, affordability is slowly improving. Wage growth is currently outpacing home price growth, meaning the typical family can afford a slightly larger share of homes over time, especially if mortgage rates do not rise further.
