A New Fed Chair and Higher Inflation: Zillow Home Value and Sales Forecast (May 2026)

We entered the year optimistic for a year of modest growth in the housing market, expecting sales to grow around 4% year over year in 2026. A meaningful improvement relative to 2025, albeit not what anyone would consider a strong market. 

When energy prices spiked at the end of February, we modeled a few scenarios showing the different impacts the shock could have on existing home sales this year, with scenarios ranging from a quick end of the shock by May 1 to a persistent shock lasting all year.

While the spring has contained signals of both strong intent and pending sales that reinforced our early optimism, the rise in energy prices appears persistent enough that we are revising our sales forecast down for the year.

Given the current trajectory of energy prices and inflation, our sales count forecast is being revised to 1.2% year-over-year growth in 2026 (0.5% for NAR’s measure of existing home sales) and home value forecast lowered to 0.1% year-over-year growth. While everyone would like to see stronger sales volume this year, and this recent run-up in mortgage rates has contributed to worsening the affordability climate, most of the drag in volume is still the long-run affordability challenges that have been growing since we stopped building following the Global Financial Crisis, and since home prices rose rapidly following the pandemic.

The New Fed Chair

A new Fed chair was sworn in this week, so there is discussion about whether that will change the path for mortgage rates this year. 

On this subject, it’s crucial to remember that the Fed chair is an important voice but not the only voice on the Federal Open Market Committee (FOMC), and the path of rates is dependent on a consensus of FOMC members. Furthermore, lost in the current discussion around disagreement among the members is that the signals really are confusing. 

This is not a case of clear data telling a clear story, with members disagreeing ideologically about their mandate. Rather, I’d argue members are primarily wrestling with a genuinely difficult decision-making environment where the data really is sending conflicting signals. 

The labor market has been offering reasons to be optimistic, but we still have one of the lowest hiring rates in 20 years. Home values haven’t collapsed, but we still have some of the lowest sales volume in recent history. Inflation has come down, with very strong evidence (up until recently) that shelter components would continue to bring it down further, while core Personal Consumption Expenditures (PCE) has been stickier than anyone would like. 

So given all of this, my expectation is that the new chair and the other members of the committee (as well as bond market investors, for that matter) will all be driven by the actual market data rather than by the change in who’s sitting in the chair’s… chair.