Forecasters trim home price growth predictions as inflation bites

Midyear housing forecasts have been revised downward as persistent inflation and elevated mortgage rates continue to impact the residential market. Realtor.com now projects home prices will grow by just 1.2% in 2026, a significant drop from earlier estimates and well below the current 4.2% inflation rate. This trend suggests that while nominal prices are rising, home values are effectively declining in real terms, providing a complex landscape for lenders and borrowers alike.

Realtor.com and Veros Real Estate Solutions have both lowered their expectations for home price appreciation through the remainder of 2026. Realtor.com’s updated forecast anticipates a 1.2% increase in prices, down from its initial 2.2% projection, while Veros predicts a similar 1.1% rise over the next 12 months. Danielle Hale, chief economist at Realtor.com, noted that the first half of the year was characterized by stability rather than momentum, as the market grappled with inflation reaching a three-year high of 4.2% in May and geopolitical tensions following the start of a war with Iran in February.

Despite these headwinds, the residential mortgage sector has shown unexpected resilience. While markets initially anticipated interest rate cuts, the shift in economic conditions has led to expectations of one or two rate hikes by the end of the year. Realtor.com maintains a mortgage rate projection of 6.3%, with rates expected to settle between 6% and 6.5% as the 10-year Treasury yield holds between 4% and 4.5%. Interestingly, the average monthly mortgage payment is projected to finish the year 1.9% lower than in 2025, as softened price growth and steady rates offer a slight improvement in affordability.

Regional performance varies significantly, with buyers increasingly prioritizing affordability in the Northeast and Midwest. Markets such as Manchester-Nashua, New Hampshire, and Rochester, New York, are expected to see price growth of at least 4% over the next 12 months. Conversely, several Sun Belt markets are facing declines; Veros forecasts the largest drop in Cape Coral-Fort Myers, Florida, at -2.7%, followed by Austin, Texas, at -1.7% and Monroe, Louisiana, at -1.4%. Overall home sales are expected to reach 4.1 million units for the year, representing a modest 1% year-over-year improvement as buyers and sellers adjust to the current economic environment.