US home prices declined for the first time since 2022 as high mortgage rates and economic uncertainty squeeze potential buyers out of an increasingly unaffordable housing market.
At a Glance
- US home prices decreased by 0.1% in April, marking the first monthly decline since September 2022
- Half of the 50 most populous US metros saw home prices drop compared to March
- Year-over-year home price growth slowed to 4.1% in April, down from 4.9% in March
- Housing supply has reached a five-year high as properties remain unsold longer
- Mortgage rates hovering between 6.6-6.85% continue to hamper affordability despite price declines
Housing Market Shows Signs of Cooling
The US housing market is showing clear signs of cooling as prices recorded a 0.1% decrease in April, according to data from real estate brokerage Redfin. This modest decline represents the first monthly drop since September 2022 and only the third month-over-month drop in Redfin Home Price Index history. The slowdown extends beyond a single month’s data, as year-over-year home price growth decelerated to 4.1% in April, down from 4.9% in March, reaching its lowest level since July 2023.
The price decrease was widespread, affecting half of the nation’s 50 most populous metropolitan areas. Charlotte, North Carolina experienced the largest decline at 1%, followed by Virginia Beach, Virginia and Miami, Florida at 0.7%. Meanwhile, some areas continued to see price increases, with Nassau County, New York leading at 1.8%, followed by Warren, Michigan at 1.3% and New York City at 1.2%.
Persistent Affordability Challenges
Despite the slight price decline, housing affordability remains a significant challenge for potential buyers. Mortgage rates have stubbornly remained between 6.6% and 6.85%, substantially higher than rates from just a few years ago. This rate environment has created what housing economists call a “lock-in effect,” where current homeowners are reluctant to sell and purchase new properties because they would lose their favorable mortgage terms.
The median monthly mortgage payment reached near all-time highs in early 2025, putting homeownership further out of reach for many Americans. Even with recent price moderation, the combination of elevated home prices and high borrowing costs means buyers must stretch their budgets significantly to make purchases. February 2025 did show a 4.2% rebound in existing home sales from January, but the annualized sales pace remains historically low by pre-pandemic standards.
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From the December 2024 Elliott Wave Financial Forecast:
"In the U.S., a steady decline in home sales continued through September as existing home sales hit a 14 -year low. Existing… pic.twitter.com/emXVnx1xz3
— Elliott Wave International (@elliottwaveintl) January 2, 2025
Market Dynamics Shifting
The housing market’s supply-demand balance is undergoing notable shifts. After years of extremely tight inventory, the supply of available homes has reached a five-year high. This increase in supply isn’t due to a construction boom but rather to properties sitting on the market longer as buyer demand wanes. Potential homebuyers are approaching the market with caution amid concerns about US economic policies, inflation, and recession fears.
Housing starts did increase by 15% in February 2025 compared to January, potentially providing some relief to the tight housing supply situation. However, this figure remains below levels seen in the previous year. The construction sector faces ongoing uncertainties related to labor availability, fluctuating interest rates, and building supply costs, all of which could impact future housing development and prices.
Investment Landscape Evolving
While the residential housing market faces challenges, there are early signs of improvement in real estate investment opportunities. Real Estate Investment Trusts (REITs) have shown improved performance in 2025, with a year-to-date return of 1.95%. This modest gain suggests investors may be seeing value in commercial real estate even as the residential market adjusts to higher interest rates and changing consumer preferences.
Market observers continue to watch Federal Reserve policies closely, as mortgage rates typically follow trends in 10-year Treasury note yields. Any future adjustments to interest rates could significantly impact the housing market’s trajectory, either alleviating some affordability pressures through lower borrowing costs or potentially further cooling demand if rates remain elevated. For now, the small price decline offers a modest respite in a housing market that remains historically expensive by most measures.
