Important points
Although house prices are unlikely to fall nationally, the rate of increase should be more gradual. While it’s normal for home prices to rise steadily over time, falling home prices are actually abnormal and could be a sign of a broader economic problem, such as a recession or economic correction. Home prices soared during the pandemic as buyers took advantage of ultra-low mortgage rates, and prices are still rising. Some Sun Belt cities, including Austin and Nashville, are seeing prices fall after soaring during the pandemic boom.
It’s no secret that housing today is expensive. Home prices are up nearly 50% compared to 2020, and mortgage interest rates have nearly doubled. Inventory shortages, soaring inflation and soaring demand during the pandemic were the main reasons, leading many consumers to lower prices.
Thankfully, the housing market is starting to smooth out, and economists expect affordability to improve in the coming years. House prices are unlikely to fall, but they will rise more slowly, which should help wages catch up.
So if you’re a homebuyer who’s been on the sidelines wondering if home prices will go down, this article is for you. We detail why prices are most likely not going to fall, why most economists believe affordability will still improve, and what buyers and sellers can do to win today.
From Redfin’s Chief Economist
“House prices aren’t going to fall nationwide right away, and that’s actually a good thing. Just as moderate inflation rates are healthy for most countries, it’s normal for house prices to rise gradually over time. The difference is that during the pandemic housing boom, But now, starting in late 2025, affordability is starting to rise faster than housing costs, and we expect this to continue for the foreseeable future. ” – Darryl Fairweather, Redfin Chief Economist
Why are house prices so high?
The pandemic-era economy sent the housing market into overdrive, then back to earth. One result was soaring home prices, which have remained high ever since, straining budgets and leaving many buyers and sellers on the sidelines. The typical homebuyer will have to spend well over 30% of their income on a home starting in March 2022, according to Redfin data.
But digging a little deeper, there are three main reasons why home prices are so high today. These are limited housing inventory, under-construction, and unstable mortgage rates. Let’s break these down.
>>Read: Why are houses so expensive?
1. Limited housing stock
America is suffering from a chronic housing shortage. Estimates range from 1.5 million to 7 million housing units, a shortage that has been growing steadily since the beginning of this century and accelerated further after the Great Recession.
If not enough homes are sold to the people who want them, prices will rise. When the shortage becomes more acute, prices tend to rise even faster. That’s what’s been happening for the last 15 years, especially the last five years.
When mortgage rates fell to record lows during the pandemic, buyers took advantage of lower costs and snapped up the majority of homes available for sale. This dried up supply and drove prices to record highs. This influence continues today.
Inventories are now gradually improving, but a volatile and expensive economy is preventing significant growth. “This is a pretty difficult pattern to break,” Fairweather noted. “High prices make it less attractive for homeowners to put their homes on the market, and prices remain high as inventory remains low. Steadily increasing new construction at prices that consumers can afford is the best way to meaningfully reduce costs nationwide.”
2. Inadequate housing construction
The United States relies on a steady supply of new housing to support its growing population. Historically, this balance has been relatively stable, with wars and economic shocks followed by construction booms and busts. But since the Great Recession, home construction has lagged far behind demand, meaning not enough new supply has been injected into the market. This is one reason why today’s typical home is older than ever.
Home construction has increased since the pandemic, but more homeowners need to sell and more home builders need to build to alleviate the shortage.
3. Fluctuations in mortgage interest rates
Mortgage rates play an important role in determining the affordability of a home. The higher the interest rate, the higher the monthly payments for homebuyers. And lower interest rates generally make it more attractive to buy.
That’s what happened during the pandemic, with ultra-low interest rates incentivizing homebuyers to buy huge numbers of homes from 2020 to 2022, depleting inventory and driving prices soaring. However, this pattern reversed when interest rates rose again.
Currently, the housing market is somewhat stalled, with relatively high mortgage rates and prices remaining high, pushing many buyers out of the market. But as time passes and more people realize that this is the new normal, more consumers may test the waters and consider buying or selling.
When will house prices fall?
Nationwide, home prices are unlikely to fall anytime soon. The housing market has gradually recovered from the volatility of the past few years, and Redfin economists expect price increases to slow down even more.
“The more accurate question would be, ‘When will housing affordability improve?'” Fairweather said. “And the answer is ‘right now!'” Thanks to steadily declining mortgage rates and flattening home prices, wages are growing faster than housing costs. We expect this to continue over the next few years as the housing market undergoes an extended reset. ”
Barring moderate corrections or isolated declines, falling home prices are generally not a good thing. If house prices fall, homeowners will lose capital and buyers may back out due to fears of a crash, and a broader economic shift is likely already underway.
Across the broader economy, steady price increases combined with rising incomes are seen by economists as a sign of a healthy and expanding economy. The US Federal Reserve’s mission is to keep inflation as close to 2% as possible. The cost of shelter, or the cost of selling or renting a home, has a significant impact on inflation. Higher inflation during the pandemic is why inflation remains above the Fed’s target.
Are house prices falling anywhere?
Home prices are currently falling, especially in cities like Austin, Nashville and San Antonio, which have been the most popular destinations during the pandemic. These cities saw a huge jump in population and buyer activity from 2021 to 2022, but then declined in popularity as prices became too high and remote work ended. Now in many of these markets, there are far more sellers than buyers in these cities, driving down prices.
Austin is a prime example. Over the past three years, the Texas metro has gone from being the hottest major city in the nation to being the coldest. Prices have fallen $150,000 from their peak, and it takes the typical home more than 100 days to sell.
How will falling home prices affect home buyers and sellers?
In most cases, waiting for home prices to drop may not be the best strategy. While prices may be falling in some markets, most economists expect prices to grow slowly rather than fall nationwide. This means buyers who wait may miss opportunities to negotiate with sellers and secure a home that meets their needs.
That said, falling prices can affect buyers and sellers differently.
For home buyers
At first glance, falling home prices sound like a good thing for homebuyers. They are now spending less on their home than they expected.
However, falling home prices are often the result of larger economic changes, such as market corrections or spikes in interest rates, which can actually make it harder to buy a home. Buyers may face challenges such as:
Possible increase in mortgage rates Decreased purchasing power Increased job uncertainty Decreased home values may make it difficult to move in the future
Due to these factors, waiting for prices to fall may not always work out the way buyers expect.
“If you are a buyer waiting for prices to drop, you may want to reconsider your strategy,” Fairweather continued. “More sellers are lowering prices to attract buyers, but only in a few cities are prices actually falling consistently. And buyers may not want to invest in homes that are declining in value. But in most parts of the country, competition is low and sellers are willing to negotiate, so now is actually a good time to buy.”
>> Read: Is Now a Good Time to Buy a Home?
For home sellers
Declining home prices can be negative for homeowners and sellers for a variety of reasons.
The value of your home is decreasing because a decrease in price means a decrease in value Declining prices often reflect buyer demand, which could lead to further decreases in value Buyers may be reluctant to purchase a home that has decreased in value Market uncertainty can make it difficult to make plans, such as buying or relocating your next home
Additionally, some homeowners, especially those who bought during the peak of the pandemic and now want or need to move, may be forced to sell at a loss. A 2025 Redfin analysis found that about 6% of sellers who bought a home between 2020 and 2022 were at risk of losing money on the sale.
“When home values are falling, it often means the market is resetting or there is increased volatility in the economy, both of which are bad news for sellers,” Fairweather added. “Most buyers may also be wary of making risky investments, which may make it difficult for sellers to close quickly. Thankfully, sellers today can expect demand to gradually return in many markets as home prices rise slowly and affordability improves.”
>>Read: Should you sell your home now?
Is the housing market crashing?
No, the housing market hasn’t collapsed. However, its speed is slow, its prices are high, and it has experienced several years of upheaval. A crash generally occurs as a result of an economic or financial shock, such as a recession, high inflation, or a significant decline in the labor market. Crash often leads to a widespread decline in home prices, buyer activity, and a spike in foreclosures and loan delinquencies.
Most economists agree that the housing market is not going to crash either, and that a long-term correction is already underway. Home prices will either rise slowly or fall in a hot market and inventory will increase, but buyers will continue to have bargaining power until affordability improves enough to even out the price balance.
>> Read: Will the housing market collapse?
Final thoughts: Prices are trending sideways, but won’t fall anytime soon.
House prices are not likely to fall in the near future and are likely to return to more “normal” growth levels. There are some places where prices are falling, but they are generally limited to Sunbelt cities where prices spiked to unsustainable levels and have now corrected.
Falling prices aren’t necessarily a good thing, as they mean lower home values and are often the result of financial stress. A healthy, growing economy is one in which prices and incomes rise slowly over time, costs remain affordable, and households maintain purchasing power.
There are many uncertainties today, from tariffs to international conflicts to concerns about AI and inflation concerns. Economists believe the housing market is starting to stabilize.
