Written by: Internal Analysis & Opinion Writers
U.S. home prices are showing signs of slowing down, with more than half of the top 100 housing markets now reporting price levels below their spring peaks. This shift suggests the housing market may be entering a more balanced phase as affordability concerns temper the pace of price growth.
The upward pressure on mortgage rates has played a significant role in cooling demand. With 10-year Treasury yields rising due to persistent inflation and uneven economic indicators, mortgage rates have climbed near the 7% mark. These elevated borrowing costs are chipping away at buyer purchasing power and prompting many would-be buyers to wait on the sidelines.
Economists, including Moody’s Mark Zandi, have warned that the housing sector could begin dragging down overall economic momentum if rates remain high. He noted that not only are buyers being squeezed out of the market, but existing homeowners are also reluctant to give up historically low mortgage rates, further limiting inventory.
Homebuilder confidence has taken a noticeable hit. The National Association of Home Builders recently reported a steep drop in its sentiment index, which hit its lowest level in over two years. Builders are responding with price cuts and incentives to boost buyer interest, yet traffic remains sluggish.
Sellers, too, are adjusting to this more challenging environment. The share of homes with price reductions has surged to levels not seen since 2016, particularly in markets like Florida, Texas, and Arizona. Some homeowners are choosing to delist their properties altogether rather than continue reducing prices beyond their comfort zone.
Despite these signs of a slowdown, the housing market is not in freefall. The pace of home sales has moderated, but price declines—where they occur—have generally been modest. In many regions, particularly the Midwest and Northeast, limited supply is helping to maintain price stability.
Recent data shows that April recorded the slowest annual price growth in nearly two years, reinforcing the idea that the market is cooling without collapsing. Economists say this is a healthy correction rather than a downturn, especially after the breakneck appreciation seen in recent years.
That said, analysts are watching several warning signs closely: rising active listings, a pullback in residential construction, and softening prices in key metros. Markets like Miami and Nashville are among those where price drops of 5% or more could materialize, especially if rates remain elevated.
The ripple effects are already evident in GDP forecasts. Residential investment is expected to subtract about 0.2% from growth in mid-2025. The construction labor market is also showing signs of easing, with job creation slowing as builders adjust to reduced demand.
For buyers, this environment offers rare opportunities. Slower competition, longer time on market, and flexible sellers are creating more room to negotiate favorable terms. However, mortgage affordability remains a hurdle that’s keeping many potential buyers cautious.
Sellers face a different set of challenges. With buyers more selective and financing costs higher, homes that aren’t well-priced or properly presented are struggling to attract offers. Many agents recommend pricing to the current market—not the peak—and using staging and marketing strategies to stand out.
The direction of mortgage rates will be critical in determining the housing market’s next move. If Treasury yields retreat and inflation softens, rates could ease, reigniting buyer demand. If not, the sector could face continued headwinds heading into the latter half of the year.
Overall, home prices are losing steam but not collapsing. Instead, the market is adjusting toward a more sustainable balance between supply and demand. After several years of overheating, this normalization may offer both buyers and sellers a clearer sense of direction—and perhaps a more grounded path forward.
