The Rate Path Wildcard (october 2026 Housing Market Forecast)

• The decline in existing home sales is forecasted to accelerate in the fourth quarter, as our moving average of newly pending listings dropped 12.8% in Zillow’s latest weekly data.  
• Total annual sales are still forecasted to finish up slightly in 2026 relative to 2025, given the lower share of sales volume the fourth quarter contributes. 
• Inventory growth is expected to increase 6.6% Y/Y in Q4, alongside home value growth of only 0.7%
• Rent growth is continuing to build, with rents expected to grow 2.4% in multifamily and 3.2% in single-family in the fourth quarter. 
• Given the volatility in mortgage rate paths, mathematical models are more likely to require revision.

As we’ve continued to note in a variety of commentary: the current economic cycle is a strange one. We’ve added a rate hiking cycle with its expected contractionary effects on top of a weak housing market rather than on top of a strong market, defying the normal story we expected from Ed Leamer’s characterization that housing is the business cycle. 

As a result we’re expecting October existing home sales (we’ll release full month statistics on November 5th) to be down considerably year-over-year. (On a rolling average weekly basis, newly pending listings dropped a whopping 12.8% year-over-year in our latest weekly data).  But the most important question right now for both housing and the economy is what else is slowed by high interest rates, and how soon. If the past is prologue we expect at some point a return to more normal market dynamics, where housing leads the business cycle. This necessarily means something else in the economy would need to slow first, the question is when. 

For example, we’ve seen recent selloffs in the AI related equity market paired with some nervousness about expectations for return on invested capital. So if this or another part of the economy outside of housing does indeed slow, then we’d expect investors to migrate to the safety of longer dated securities, mortgage rates to come down, home sales to rise, and housing to lead the business cycle again. But while there are early signs of this, it hasn’t happened yet. 

So while our current outlook is based on the current rate path, I think it’s increasingly likely that the actual path we follow will either be notably better or worse than what the math would predict. (Worse, if inflation isn’t brought under control, or better if inflation and/or growth expectations drop sooner rather than later). 

With that caveat on the current math noted, here’s what our latest forecast predicts.