According to Zillow Research, the housing market is hitting the brakes as we head into the final stretch of this year. Their latest forecast shows existing home sales are projected to drop 3.5% in the fourth quarter compared to the same period last year, which is a steeper decline than they predicted just a month ago. Despite this weakness toward year-end, they're still expecting 2026 overall to finish slightly ahead of 2025 when you look at the full year numbers.
What's interesting is the contrast between what's happening in the for-sale market versus the rental market. While home sales are struggling under the weight of higher mortgage rates, the rental market is actually accelerating. Zillow now forecasts rent growth of 2.1% in the fourth quarter, an increase from their previous expectation. At the same time, inventory for sale continues to build at a healthy clip, growing more than ten percent year-over-year.
The researchers at Zillow point out that this shift tells a bigger story about how the year has unfolded. Back in January, they were predicting much different conditions, with expectations for home sales to rise and rents to barely budge. But the runup in energy prices and inflation over the summer has completely changed the landscape. Now renters are seeing stronger demand while buyers are facing a tougher environment.
For people shopping for homes right now, there's actually a silver lining here. With inventory increasing and more sellers putting their homes on the market, buyers have more options to choose from and more leverage to negotiate. Zillow notes that price reductions are becoming more common, which means serious buyers have real negotiating power in this environment. The tradeoff is clear: you might have to deal with higher rates, but you're shopping in a more balanced market than we've seen in quite some time.
What I am seeing locally here in the Bay Area and East Bay is that this inventory buildup is real and it's changing how conversations happen in my office. Sellers who might have been sitting pretty two years ago are now having to think harder about their pricing strategy, and buyers who sat on the sidelines are starting to have genuine opportunities to make moves. The rental acceleration is also worth watching because it suggests people are making different life choices about whether to commit to ownership right now.
