Some pain, some gains. Here’s where Zillow sees home prices in your market going next

Zillow's 12-month forecast projects mortgage rates remaining stubbornly above 6 percent, existing home sales rising 4.3% in 2026 to 4.26 million, and national home prices climbing just 1.2% amid wide regional divergence. Over the past year 53% of homes lost value and Zillow expects prices to fall in 214 of 894 metros (≈24%), with pronounced weakness in many Sun Belt markets (e.g., Austin -6.1%, Tampa -6.1%, Miami -4.8%, Orlando -4.6%, Dallas -4.0%), while Midwest and Northeast markets show relative strength; 24 of the 50 largest metros posted year-over-year declines by October 2025 versus an expected 12 next year. These trends imply continued mortgage and housing-sector headwinds, uneven regional exposure for real-estate equities and REITs, and potential implications for mortgage lenders and housing-sensitive investment strategies.

Analysis

Market structure: Persistent 6%+ mortgage rates and Zillow’s mix of modest national growth (+1.2% y/y) but concentrated Sun Belt declines (several metros down 4–6%) create clear winners — high-quality rental REITs (EQR, AVB) and local landlords collecting higher rents — and losers — geographically concentrated homebuilders and mortgage originators reliant on transaction velocity. Supply/demand is bifurcating: elevated inventory and price discovery in Florida/Texas markets vs. tighter Midwest/Northeast stock, implying divergent pricing power and localized discounting of 5–8% peak-to-trough in weakest metros over 6–12 months.

Cross-asset/competitive dynamics: Expect wider MBS spreads and sustained term premium in Treasuries if rates stay sticky, supporting short-duration, high-carry strategies; USD likely stays bid on higher-for-longer Fed expectations, pressuring EM FX and commodity cyclicals (lumber, copper) tied to construction. Competitive dynamics favor large diversified national builders (LEN, DHI) with strong balance sheets over small regional builders who will cede market share in weak Sun Belt pockets; brokers and iBuyers (high inventory turnover models) face margin compression.

Risk and catalysts: Tail risks include a sudden 150–200bp Fed pivot (fast rate cuts) which would sharply reflate Sun Belt prices and hurt short positions, or a regional employment shock (tech or hospitality layoffs) that deepens local drawdowns; monitor weekly MBA mortgage applications, monthly FHFA/HPI and regional employment releases for 1–3 month inflection signals. Hidden dependencies: local job pipelines, zoning/permit backlog, and tax changes can flip micro-markets quickly; catalyst windows are Fed meetings (next 3–6 months), CPI prints, and Spring listing season.

Trade implications and timing: Near-term (days–weeks) favor income and defensive carry: buy rental REITs and short convex exposure in builders; medium-term (3–9 months) implement directional shorts on homebuilder beta and mortgage originators via options to cap downside; be prepared to unwind within 1 month if 30-year mortgage <5.75% or MBA apps spike >10% month-over-month, which historically precedes rapid resale activity.

Key Decisions for Investors

• Establish a 2–3% notional bearish position on homebuilders via ITB (iShares U.S. Home Construction ETF) — implement as a 3–6 month put spread (limit cost basis) targeting 8–15% downside; stop-loss/cover if ITB rallies >15% or 30-year fixed mortgage falls below 5.75% (weekly MBA trigger).
• Allocate 3–4% to high-quality rental REITs (split AVB 1.5% + EQR 1.5% + 1% cash-secured covered calls) for 6–12 months to capture rent-led cash flows while buying against buying-deterrent from 6%+ rates; take profits if REITs outperform XHB by >10% or if CPI surprises to the upside by >0.4% m/m.
• Initiate a 1–2% directional short on mortgage originator/fintech Rocket Companies (RKT) via 6-month puts (or short equity) — originations and refinance sensitivity to 6%+ rates creates high downside convexity; exit if company guidance beats by >15% or 30-year rate drops below 5.75%.
• Implement a pair trade: long EQR/AVB (total 3%) vs short ITB (2–3%) to express housing bifurcation — net neutral to broad market beta; rebalance monthly and unwind the short leg if regional FHFA indices show sequential positive momentum for >2 months in targeted Sun Belt metros.