How rising energy prices could change the course of home sales 

Most economists predicted modest improvements in home sales this year — not a rebound, necessarily, but a reset after two consecutive years of decades-low numbers.

But those forecasts didn't account for a war in the Middle East or the soaring oil prices that followed. A new projection from Zillow presents three scenarios for the 2026 housing market based on the cascading impacts of the war — specifically, the shocks of higher mortgage rates resulting from inflationary concerns, and increased unemployment stemming from the effect of high prices on consumer spending. 

Unexpected price jumps change the affordability equation: According to Zillow's original 2026 housing market predictions, existing home sales would increase 4.3% this year to about 4.26 million — not a "strong" market, but one "that had turned a corner," Zillow Chief Economist Mischa Fisher wrote in his updated forecast. 

The recent jumps in energy prices and inflation, however, add a new wrinkle to the outlook. Mortgage rates are up by about 50 basis points since their February low, "removing about a third of the year-over-year affordability gains" seen when rates fell below 6%, Fisher noted. 

Consumers appear to be feeling the pinch, with mortgage purchase applications falling over the past week and affordability below historical averages for the first quarter of the year, according to ATTOM.

Could a low-rate window spur sales? While mortgage rates are expected to fluctuate, Zillow's projection assumes rates maintain an average level of around 6.5%. A sudden drop in rates could lead to a boost in sales; conversely, higher rates could further erode consumer confidence, making the outlook even worse. At the moment, the picture isn't looking very rosy, with the average daily rate up to 6.62% on March 26, according to Mortgage News Daily.

The labor factor: Zillow expects the unemployment rate to hover between 4.37% to 4.5% throughout the year, Fisher told Real Estate News in an email. The new projections factor in a 20-basis-point increase to that range to reflect a scenario "where higher energy prices weigh on consumer spending and employment," Fisher said.

What if unemployment remains stable? Labor market data has been mixed so far this year — surprisingly strong in January, weak in February — so it's possible that unemployment could, on average, hold steady. If the market only experiences a mortgage rate shock "without an accompanying lift in unemployment and it persists all year, we'd expect the market to remain approximately flat year-over-year for home sales," Fisher said. 

The projections: In the best-case scenario, according to Fisher's model, elevated mortgage rates and unemployment ease by May 1, causing existing-home sales to rise 3.48% in 2026 — less than Zillow's original 4.3% prediction, but not a disaster. 

Should the two "shocks" remain in place until July 1, that percentage drops to 2.33%, and if they persist through the end of August, home sales would only tick up by 1.21% for the year. And the worst case? Higher rates and unemployment last all year, pushing sales down by 0.73% compared to 2025.