Will US existing home sales exceed 4.5M annualized by Q4 2026?

Existing home sales have been stuck near 4.0-4.1M for over a year despite improving affordability (32% of income vs 38% peak). The mortgage rate lock-in effect is the primary constraint: ~60% of outstanding mortgages have rates below 4%, creating massive disincentive to sell and buy at current 6.5-7%+ rates. Moving to 4.5M requires either a meaningful rate decline (to ~5.5% or below) or an extended period of stable rates allowing gradual normalization. Neither scenario has high probability by Q4 2026 given current inflation trajectory and Fed guidance.

Affordability at 32% of income is improving from the 38% peak, which suggests the denominator (income growth) is outpacing the numerator (home price + rate cost). If rates decline 50-75bps from current levels by Q4 2026 (plausible if inflation continues moderating), the combined effect of improved affordability and slightly lower rates could push sales to the 4.3-4.5M range. But 4.5M specifically is a high bar — it would represent the first meaningful breakout from the 3.8-4.2M range that has persisted since late 2022. Macro uncertainty is high.

The analysis notes Zillow management 'plans for flat' housing but sees affordability improving. Management is the most optimistic party and even they are not projecting a recovery to 4.5M. Supply constraints (chronic underbuilding since 2010) mean that even if demand improves, available inventory may not support 4.5M transactions. The structural headwinds (lock-in effect, limited inventory, elevated rates) dominate the cyclical tailwinds (improving affordability, demographics). This question resolves on any single month in Q4, which gives some optionality, but the base rate is against it.

Housing recovery has been 'around the corner' for 3+ years per the committee analysis. The 4.1M baseline has shown remarkable resistance to improvement despite gradually improving fundamentals. The lock-in effect is structural: millions of homeowners with <4% mortgages have no economic incentive to sell. Reaching 4.5M requires a 10% increase from current levels in ~9 months — an acceleration that has no recent precedent given the structural constraints. Management's flat guidance is the most telling signal.

The question asks about any single month in Q4 2026 exceeding 4.5M annualized, which provides some favorable optionality — seasonally, October-November can see spikes from spring/summer contracts closing. If there is a meaningful rate decline in mid-2026 (possible if the Fed cuts), the lag effect could boost Q4 volumes. But even seasonal strength from a 4.1M base is unlikely to produce a 4.5M print without a catalyst. A surprise Fed rate cut cycle could change the calculus, but that is speculative.

The most relevant data point is that existing home sales have been in a narrow 3.8-4.2M band for over 2 years. Breaking above 4.5M would require a regime change in the housing market, not incremental improvement. The committee analysis is right that affordability is improving, but the rate at which it translates to transactions has been stubbornly slow. The structural lock-in effect means even moderate rate declines may not unlock sufficient supply. Probability below 25%.

Housing volumes stuck at 4.1M for years. Lock-in effect is structural. Management guides flat. Reaching 4.5M requires regime change. Low probability.

Some optionality from single-month resolution criterion. Improving affordability and potential rate cuts provide upside scenarios. But base case is continued stagnation near 4.0-4.2M. Below 30% probability.

Three-year trend of stagnation around 4.0-4.2M is the dominant signal. No catalyst visible in 9-month horizon sufficient to boost to 4.5M. Structural supply constraints compound the demand problem.