Will we see home prices decline in 2025?

Recently, we’ve shared that the inventory of unsold homes is growing. In recent weeks, home sales also faltered in the face of 7% mortgage rates. Now we’re noticing some signals in the data that national home prices could turn negative this spring, showing year-over-year home-price declines for the first time since early 2023. 

There are already plenty of markets nationwide where the inventory of unsold homes has built up over the past few years and home prices have ticked down. But nationally, home prices are still higher year over year, and some places like New York state had significant home-price gains in 2024 due to persistently tight inventory.

Today, the weekly Altos Research-tracked active market data shows signals for this spring that more markets are softening and fewer are pushing higher. Therefore, average price growth across the country may turn negative compared to a year prior. 

There are many ways to measure home prices and even more signals about future sale prices. I think it’s important to note that almost all these metrics have been showing flatter home-price appreciation. After a little burst of strength a few months ago, many of the home-price metrics have gradually flattened from a year prior. Now some of them are sliding below the year prior, which is driven by relentlessly high mortgage rates. 

Let’s take a look at the data for the third week of January 2025.

Home prices are down

The median price of all homes in the U.S. this week is $421,000. If you want to buy a home, this is what’s available. What’s notable is that this home-price metric is now 0.7% below the same time last year. It’s important to note how unusual this is over the long term. 

This is one signal of national home prices declining from last year. This market is at a standstill as long as mortgage rates are above 7%. We see it in demand for homes and supply growth, and we also see the impact of higher mortgage rates on home prices.

By the end of January each year, you can already see the trajectory that home prices will take for the full year. In 2022, it was the end of the post-pandemic boom and buyers were rushing to get a home before mortgage rates climbed, so there was steep price appreciation in the first half of the year. Home prices climbed weekly and were 10% to 15% more expensive than the year prior.

In 2023, the spring slope was much less steep. Following that, 2024 started a bit higher still. But by June, prices peaked for the year while remaining below the June 2022 peak.

In 2025, the price appreciation curve is flatter still. Even though the best new inventory hits the market each week, these are being priced fractionally cheaper than last year. Home sellers and listing agents know where demand is for homes. They also understand the affordability crunch that buyers face and therefore they’re pricing the listings a little lower than last year at this time.  

Meanwhile, the median price of the new contracts pending this week came in at $384,700, which was a slight jump from last week. The median price paid for newly pending home sales has been averaging just 2% more than a year ago. This measure is still showing barely positive home-price gains, while the active listings are negative.

Keep in mind that not all the home-price measures are negative. Some are still showing positive home-price changes compared to last year. There is nothing in any of January’s home-price data to show any growing momentum. It is negative. 

Here’s one bright spot — 2025 is the third year of flattish home-price changes. Over the past few years — and hopefully over the next few years — incomes are climbing faster than home prices. When that happens, affordability improves. This market is slowly improving affordability across the country. At some point in the future, the cost of money drops, and that will be a dramatic benefit for affordability.

Price reductions are more common

Let’s use the percentage of homes on the market with price reductions as an indicator for future sale prices. Right now, 33% of the active listings have taken a price cut from the original list price. At this time last year, it was 31%. More sellers are facing an absence of buyer demand, prompting them to reduce their asking price.

In 2023, this number was 33.9%. The weakest pricing moment of the past three years was the fourth quarter of 2022. By January 2023, price cuts were still elevated. But at that moment, we were surprised at how quickly the market was recovering. It was declining by 80 or 90 basis points (bps) per week compared to 50 bps now. 

By the end of February, we’ll have the most price reductions of any February in many years.

These are homes that are on the market now, with no offers. They’ll take a price cut and hopefully get an offer in February. That deal closes in March, and by April, you should be hearing the headlines that reflect the weakness we can see in the active market data.  

And when we look at the supply data, supply of active inventory is continuing to grow. That says that these pricing trends are poised to continue.

New listings are up from last week

On the supply side, there were 51,000 unsold new listings this week. That’s 13% more than last year at this time. There were 4% more sellers, including the immediate sales. That growing supply pattern is healthy, if we also have more buyers. But with high costs and no signs of decline, buyers are waiting. 

Also, we’re finally returning to normal levels of sellers and unsold inventory following the pandemic. We want to see this curve grow each week by the peak in June. I don’t expect us to see 100,000 new listings in a given week this year, like we did in the previous decade, but we may hit 80,000. 

More sellers means more selection for buyers. It also means less upward pressure on home prices, which we’re seeing now. More sellers implies improvement on affordability — especially over time.

Inventory climbs for third straight week

There are now 637,000 single-family homes unsold on the market, up 0.7% from last week and 26.5% more than a year ago. This year, we may already be past the low point of inventory for the year. Weeks ago, we counted 624,000 homes on the market. We’re at 637,000 now.

Most years experience a few down weeks with less inventory before the spring season really kicks off in February. So far this year, we’ve only had up weeks. That is, inventory is building earlier in the season. This is a function of slightly more sellers and still fewer buyers. Homebuyers are waiting. 

Pending homes sales remain stagnant

Although the fourth quarter showcased improvement in sales volume, these December sales gains are gone. There were 52,000 new contracts pending this week. Last year saw 56,000 sales started during the same week of January. That’s 7% fewer sales compared to last year.

There are 266,000 single-family homes in the contract pending stage, which is 3.5% fewer than last year. Last week, pending sales were down 2% year over year. The data for condominiums is even weaker. 

Our immediate gauge of demand was 7% fewer than last year, and we’ve been averaging 9% fewer sales over the past few weeks. 

In the fourth quarter, sales were coming in above the year prior. Mortgage rates rose over 7% in December and so we are now seeing the slowdown in buyer demand. We see it in prices and weekly offers.

Mike Simonsen is the founder of Altos Research and will be a featured speaker at the Housing Economic Summit in Dallas on Feb. 26. Learn more here.