Home prices in the United States have declined compared to last year for the first time since mid-2023, signaling a potential turning point in a market that has remained stubbornly expensive despite elevated mortgage rates. The 30-year fixed mortgage rate currently averages 6.21 percent, down from 6.72 percent a year ago but still far above the sub-4 percent rates that prevailed before 2022. With inventory slowly building and sellers increasingly cutting asking prices, the market is showing signs of rebalancing even as fundamental affordability challenges persist.

What Is Happening to Home Prices?

National home prices have turned negative on a year-over-year basis, though the decline remains modest. According to high-frequency listing data from Parcl Labs, prices have fallen approximately 1.4 percent over the past three months.

Certain markets are experiencing more significant corrections. Austin, Texas leads with prices down 10 percent from last year. Denver has seen a 5 percent decline, while Tampa, Florida and Houston have both experienced 4 percent drops. Atlanta and Phoenix have recorded price decreases of approximately 3 percent.

The median sales price for existing homes increased 50 percent between 2019 and 2024, rising from $271,900 to $407,600 according to the National Association of Realtors. This dramatic appreciation created significant affordability challenges that are now moderating as the market adjusts.

Fannie Mae and the National Association of Realtors predict home prices will increase by 2.1 to 4 percent in 2026, suggesting the current softness may prove temporary rather than the start of a prolonged downturn.

How Are Mortgage Rates Affecting the Market?

The 30-year fixed-rate mortgage averaged 6.21 percent as of mid-December, according to Freddie Mac’s Primary Mortgage Market Survey. This represents a modest improvement from the 7.04 percent peak reached earlier in the rate cycle but remains far above the historically low rates of 2020 and 2021.

The 15-year fixed-rate mortgage averaged 5.47 percent, providing an option for buyers willing to accept higher monthly payments in exchange for substantial interest savings over the loan term.

According to J.P. Morgan Research, mortgage rates are not forecast to breach 6 percent in 2025 and should ease only slightly to around 6.7 percent by year end. This projection suggests that demand will remain at exceptionally low levels compared to historical norms.

The current housing market stagnation is closely tied to interest rates. Experts suggest the situation will not fundamentally change until mortgage rates return toward 5 percent or lower.

What Is Happening with Housing Inventory?

Active listings in November were nearly 13 percent higher than November 2024, according to Realtor.com, providing buyers with more options than they have had in recent years. However, new listings were just 1.7 percent higher, indicating that many potential sellers remain reluctant to enter the market.

Sellers are pulling homes off the market at an unusually high rate, a phenomenon known as “delisting.” Many homeowners who locked in low mortgage rates during 2020 and 2021 are reluctant to sell and take on new loans at current rates.

Zillow data from the third quarter of 2025 showed inventory levels rising from the “empty shelves” conditions of the pandemic-era buying frenzy. However, there remains a 17 percent inventory shortfall compared to pre-pandemic times.

The typical home now spends about 64 days on the market, roughly three days longer than a year earlier, marking the 20th consecutive month of year-over-year increases in time on market.

How Is New Construction Responding?

Homebuilders face challenging conditions despite the need for additional housing supply. Single-family housing starts have declined year over year for six consecutive months as builders manage inventory of unsold completed homes.

The inventory of unsold completed “spec homes” has almost quadrupled since spring 2022 as builders increased construction to meet anticipated demand that failed to materialize at current price and rate levels.

Builders are relying heavily on incentives including mortgage rate buydowns to attract buyers. According to Morningstar, homebuilder sentiment has trended lower throughout 2025 amid weak demand and concerns about tariff-related cost increases.

Analysts expect single-family starts to decline approximately 3.0 percent in 2025 and 0.5 percent in 2026 before rebounding in 2027 as economic uncertainty fades and lower mortgage rates potentially improve affordability.

What Should Buyers and Sellers Expect Going Forward?

The outlook for 2026 suggests a market that is calmer but not dramatically cheaper or easier for buyers. Housing affordability was a significant challenge in 2025, and while conditions are improving marginally, fundamental constraints remain.

Renter-occupied household growth exceeded owner-occupied growth at the end of the first quarter of 2025, continuing a trend driven by affordability challenges. For many households, renting remains the more realistic option while they save for down payments.

Fannie Mae projects mortgage rates to end 2026 at 5.9 percent, which would represent meaningful improvement from current levels. New and existing home sales are forecast to total 5.16 million in 2026, up from 4.72 million expected in 2025.

For buyers who are financially prepared, the current environment offers more inventory and negotiating leverage than the frenzied markets of 2021 and 2022. Price reductions are increasingly common, and sellers are more willing to negotiate on terms. However, elevated rates mean monthly payments remain a significant stretch for many households hoping to achieve homeownership.