Key Details:
- Zillow’s March 2025 housing market report shows home prices rose just 0.2% month over month, with inventory up 19% year over year to 1.15 million homes.
- Zillow now forecasts a 1.7% year-over-year drop in home values by March 2026, reversing its earlier bullish outlook.
- Inventory increased 19% year over year, giving buyers more options but highlighting ongoing affordability challenges.
In its latest housing market report, Zillow downgraded its 12-month forecast for the third month in a row, now projecting a 1.7% year-over-year drop in U.S. home values by March 2026. That marks the first time in years the platform has predicted a nationwide price decline.
The reason? A surge in new listings, affordability barriers, and buyers who are hesitant to act. That’s despite mortgage rates hitting a 2025 low in March (for a few days).
Still, Zillow Chief Economist Skylar Olsen describes this market as “healthier than it’s been in years,” with buyers finally having more options, but still facing significant affordability barriers.
More sellers came out to test their luck as rates ticked down in March, but home sales didn’t keep up. Buyers — especially first-timers without equity to pour into their down payment — continue to struggle with affordability and now are facing even higher levels of uncertainty. A turbulent economy likely weighs more heavily on first-time buyers than more firmly established sellers.
Let’s break it down.
A Surge in Listings, But Buyers Haven’t Caught Up
Sellers are stepping up. In March, more than 375,000 homes hit the market, up nearly 9% compared to last year. That’s a strong sign of seller confidence, and a welcome shift after years of tight supply.
But it’s still 19% below the typical March before the pandemic, so we’re not all the way back yet. Meanwhile, buyers aren’t moving at the same pace:
- Newly pending sales remained flat year over year despite slightly lower mortgage rates (which dipped for a minute to around 6.65% compared to 6.82% in March 2024).
- Roughly 265,000 homes went under contract, which means about 110,000 more listings were added than sold.
- That imbalance pushed inventory up 19% year over year to 1.15 million homes—the most buyers have seen in March since early pandemic days.
Olsen notes that this trend is actually good news: “Inventory growth means buyers have more options, more time, and more negotiating power. It’s a sign the market is healing.”
Zillow’s Updated Home Price Forecast
With inventory increasing, price growth has cooled significantly. The typical U.S. home value is $359,741, rising just 0.2% month over month—the slowest March growth since at least 2018.
Year-over-year appreciation is still positive at 1.2%, but far from the double-digit spikes of recent years.
Meanwhile, fast-forward to March 2026, and Zillow is now forecasting a 1.7% year-over-year drop in home prices, with a 0.95 decline projected for June 30th of this year.
Zillow has been walking back its outlook for U.S. home prices all year.
- In January, it predicted a +2.9% increase over the next 12 months.
- By February, that number dropped to +1.1%.
- March dropped to just +0.8%.
- And for the first time in years, Zillow is now forecasting a YoY decline of -1.7%.
So what’s behind the back-to-back downgrades?
According to Zillow economists, it comes down to rising inventory and affordability pressure. With more active listings on the market, buyers suddenly have options—and leverage. But that doesn’t mean they’re jumping to buy.
In plain terms: home prices surged over 40% during the Pandemic Housing Boom, and mortgage rates shot from 3% to 6% in 2022. That combo is still hitting buyers hard—and it’s slowing down price growth nationwide.
Zillow’s model also points to another drag on prices: softening markets along the Gulf Coast. Weakening demand in that region is expected to pull down the national average even further.
The Bottom Line
Zillow’s latest forecast signals caution, especially with its relentless downward revision. But as ResiClub founder Lance Lambert points out, not all housing forecasters are playing the same tune. Lambert argues that Zillow’s bearish stance might overlook opportunities in the Northeast and Midwest, where historically tight inventory could still work in sellers’ favor.
It’s worth noting, too, that Fannie Mae is predicting a modest 1.7% rise in home values in 2025, while Wells Fargo is forecasting a 3.0% increase.
Time will tell whether the impact of tariffs and the rise in material costs for builders will sway future Zillow home price predictions in a more bullish direction. And depending on how rates go, that could further challenge affordability, especially for first-time buyers.
