An unexpected surge in energy prices and lingering inflation concerns are threatening to derail the U.S. housing market’s anticipated 2026 recovery. According to a new economic analysis from Zillow, these emerging headwinds could potentially wipe out projected gains in existing-home sales if the economic shocks persist through the end of the year.

In a report released Tuesday, Zillow outlined several revised scenarios that alter its initial forecast of a 4.3% increase in existing-home sales for the year.

Driven by a recent 50-basis-point jump in mortgage rates stemming from inflation fears, alongside the potential for a 20-basis-point uptick in unemployment and reduced consumer spending power, the revised models paint a dimmer picture of the spring and summer homebuying seasons than the listings giant had previously projected.

The severity of the market slowdown will depend on how long elevated energy prices and inflation persist, the real estate listings company believes. If the dual shock of higher rates and growing unemployment lasts through the peak home shopping season and ends on Sept. 1, existing-home sales growth will likely shrink to just 1.21%, according to Zillow.

But should the economic shock persist for the full calendar year, Zillow’s researchers expect the housing market to contract, with existing-home sales declining by 0.73% compared to the year before.

Even in more optimistic scenarios where the economic disruptions end earlier, Zillow forecasted that the market will feel the impact. If the shock subsides by May 1, for example, sales growth is projected to be stunted at 3.48%.

When modeling these potential outcomes, Zillow economists used a linear binary shock to the housing market. According to the report, the researchers intentionally avoided adding complex parameters for a rapid recovery and subsequent “catch-up” sales, which would have painted a more optimistic picture. Likewise, they excluded downstream impacts on buyer sentiment and intent, which would have made the forecast even more pessimistic.

Analyses that do attempt to incorporate the downstream effects of these dynamics have predicted a more dire situation. For example, a February report from Clever Real Estate found that 94% of respondents said they would change their home-purchase plans if mortgage rates fail to fall below 6%.

2026 was largely expected to be a “reset year” for the real estate industry. Zillow originally forecasted that by the end of 2026, a typical home would be affordable to the median household in 20 of the 50 largest U.S. metro areas.

However, the rapid return of elevated borrowing costs is already acting as a drag on spring homebuying activity. According to Zillow’s analysis, the rate jump has erased approximately one-third of the year-over-year affordability gains the housing market had achieved. 

Because the duration of the current energy shock and its attendant economic impact is unknown, Zillow researchers noted that shifting from a single forecast to a set of predictions based on path-dependent scenarios is now necessary for understanding the 2026 housing market.