A major U.S. real estate technology firm, Zillow, has issued a fresh forecast warning that the housing market landscape is set to shift significantly in the second half of 2026. The company suggests that the recent surge in sales activity seen in July may prove to be short-lived, as persistently rising mortgage rates are expected to cool the market.

According to Zillow's data, existing home sales in July jumped 7% year-over-year, marking the strongest monthly performance since 2026. However, the company's chief economist, Mischa Fisher, cautions that this momentum is unlikely to last. "July was a strong month, but unfortunately, it may represent the peak we can expect for the remainder of the year," Fisher stated.

Strong July, but Weakness Ahead

Most of the homes sold in July were locked in during June, when mortgage rates hovered around 6.5%. This, combined with pent-up demand, fueled a burst of activity. However, rising borrowing costs later in the summer caused many potential buyers to step back. Pending sales in July grew by only 0.3% year-over-year and plunged 7.7% month-over-month. Fisher noted that the combination of weak pending sales and a deteriorating rate environment signals a significant slowdown in sales growth for the second half of the year, with some regions possibly seeing flat or even declining numbers.

Mortgage Rates Continue to Climb

Data from Freddie Mac on August 6 showed the average 30-year fixed-rate mortgage at 6.69%, up from 6.66% the previous week and 6.63% a year earlier. By August 11, the rate had climbed further to 6.79%. Zillow warns that if rates continue to rise, mortgage costs in August will exceed year-ago levels, pushing typical monthly payments above what they were a year ago. The "affordability advantage" that buyers have recently enjoyed is likely to vanish in the coming months. The current median U.S. home price stands at $371,757, up 1.1% year-over-year. In July, a buyer putting down 20% still paid 0.9% less per month than a year ago, but this advantage is now under threat.

Other Market Signals

The average time from listing to signing a contract has stretched to 25 days, one day longer than a year ago and five days longer than in June. In July, 27.1% of active listings had their prices reduced. Meanwhile, 30.8% of homes sold in June went for more than their asking price, a figure roughly flat year-over-year.

The market is now closely watching the upcoming July Consumer Price Index (CPI) data. Morningstar expects inflation to re-emerge. Mortgage rates are highly sensitive to CPI figures, and any significant deviation from expectations could trigger further volatility in rates.

Zillow concludes that the strong performance in July was primarily a delayed reaction to earlier improvements in mortgage rates. With rates now rising again and the momentum of new contracts fading, the U.S. housing market in the second half of 2026 is likely to enter a phase of slowing growth, or even localized cooling.