Could Home Prices Turn Negative This Year?

Home price appreciation across the country is barely positive compared to last year at this time. Depending on how you measure it, home prices are about 2% higher on average across the country than last year at this time. Late last year, prices were about 4% to 5% above last year. Now, we’re looking at 2%. The question worth asking now is what happens the rest of this spring. Do home prices turn negative? If mortgage rates stay elevated, demand will stay weak, and supply is slowly growing. In that case, further price pressure is a conceivable scenario. 

Newly pending sales came in this week at the same level as a year ago. Sales have been running below last year. That’s a tiny bit of encouraging news as most of the housing market data nationally continues to signal that homebuyers are sitting on the sidelines.

The internet this week is overflowing with people who have a single screenshot from Zillow and declared that, with all the government cuts, suddenly the Washington, D.C. housing market is crashing. Spoiler alert: The D.C. housing market is not crashing. Inventory is still very tight in the D.C. Metro. New listings are barely above the pandemic lows.

Let’s take a look at the data for how February 2025 is shaping up.

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I’m Mike Simonsen, I’m the founder of Altos Research. Let’s look at the data for the week of February 17, 2025. Please refer to the video below for all the charts I mention in this transcript!

Home Prices

As I mentioned, home price appreciation is waning, on average across the country. Home prices finished 2024 up about 4-5% over the prior year. In the first quarter this year, sales momentum has slowed and prices have also. 

The median price of the newly pending home sales this week, those homes that were on the market, took offers and started the sales process, is $386,000. That’s a little downtick from a week ago and is just 2% higher than last year at this time. 

I’ve pointed out that in the long term, normal times, most years would see about 5% home price appreciation each year. So 2% right now is obviously weaker home than normal. It’s not negative, but I find it useful to think of home prices as virtually flat, unchanged from a year ago. In fact in real terms, home prices are negative from last year. As I mentioned, some markets, some weeks are priced above last year. Many markets are priced below last year.

Homebuyer demand remains weak and it shows in sales prices. It’s not really accurate to say “home prices are falling.”  You can see in this view of the weekly pending home sales prices, that the purple line of 2025 is still above previous years. The question of the day is whether this year sees downward steps in home prices. We can use this dataset to see when home prices are measurably falling.

In June and again in October of 2022, home prices fell, which I’ve highlighted in gray for the green line here. The green line is 2022. The second half of 2022 was when the market adjustment rapidly happened as mortgage rates spiked for the first time.

The market behavior right now is different from then. In the first half of 2022, we were emerging from the pandemic home buying frenzy. Mortgage rates were rising very quickly every week and everyone knew it. Any potential home buyers were fighting to get their deal done before rates climbed too high. By June, rates had climbed too high. Buyers stopped. At that time, the only activity for home buyers happened on properties that they saw as a bargain. Home prices dropped several percent in June of 2022. You can see that here in the green line. 

Then in the fall of 2022, interest rates spiked again all the way to 7.5%. That move was way higher than anyone had expected. Buyers got spooked again, and home prices dropped again. 

That’s not what’s happening now though. Now it is less of “home prices are falling” and more like “home prices are staying flat for a long time.” Now, you might notice that the best properties, well priced are selling quickly in most of the country. A friend sold a place last week in DC in two days with multiple offers. The scenario now across the country is that the sunbelt markets have a lot of inventory, and those southern cities are much more likely to have home price declines compared to last year. The northeast cities have very tight inventory and much more likely to have home price appreciation vs last year. 

Inventory

Let’s switch to supply. There are 638,000 single family homes unsold on the market around the US now. That was a healthy rise of almost 1% for the week. That’s normal and expected for mid-February. Inventory actually ticked lower for the last two weeks so a nice increase in the homes for sale this week is good. 

Nationally, there are 29% more homes unsold on the market now than a year ago. That’s 144,000 more single family homes on the market now. Inventory has been about 27-30% more than the year prior for 6 months now. 

If mortgage rates continue to stay elevated, around 7% for longer into the year, I expect inventory to keep growing and expand that difference from 2024. There are 29% more homes on the market, but that could grow into the 30s if mortgage rates stay elevated. In general higher rates creates higher inventory.

We have a forecast that inventory will end the year about 765,000 single family homes unsold on the market. That would be an 18% increase in 2025 over 2024. So our forecast assumes some tightening with the trends from 2024. However, so far in 2025 interest rates have stayed higher for longer and therefore inventory is staying higher for longer.  If we get lucky and mortgage rates fall closer to 6% before the end of the summer, I expect demand to pick up faster than supply and so inventory will tighten compared to 2024.  If rates stay higher for longer, we’ll probably have to revise up our inventory forecast for the rest of 2025.

The takeaway for inventory numbers this week: The inventory of unsold homes on the market continues to grow across the country. There’s no sign of that changing any time soon.

New Listings

On the seller side, there were 57,000 new listings unsold this week. That was a nice jump of 5% for the week and is 14% more than a year ago.  In addition there were 11,000 new listings immediate sales so in total 68,000 sellers this week. That is a healthy 8% more than the same week in 2024. 

In this chart we’re tracking the new listings unsold each week. You can see the 57,000 now in the purple line for 2025. Inventory is building a little quicker each week than it has in recent years. There are of course still a lot fewer sellers each week nationally than the old normal levels. The gray lines are the new listing levels from previous years. 

This was like the Washington DC nonsense that was floating around the internet this weekend. There are only 57,000 new listings across the country. It’s not that much. The DC Metro had about 450 single family homes and another 450 condos newly listed in the last week. 900 new listings is about 50% fewer than DC used to see in February in the years prior to the pandemic. Still very few sellers. 

If you have a hypothesis that there is some flood of sellers that are going to crash home prices, man, it’s just not in the data now. It’s not in DC, and it’s not nationally, and it’s not ever really true in the weakest markets in the country, like Tampa. 

Home Sales

In fact it’s the demand side that we see the implications. Not a lot more sellers, just fewer buyers. Nationally we counted just over 60,000 newly pending sales for single family homes this week. That’s an increase of nearly 5% for the week, which is what you’d hope for the housing market in the middle of February. The weekly sales numbers came in just a tiny fraction ahead of a year ago for only the second time this year. Home sales have been running behind last year’s already very low levels. It’s hard to see any bullishness in the home sales data. 

This chart shows the weekly newly pending sales. The purple line is basically equivalent to last year’s pace. Last year was super slow for home sales of course. No signal in the weekly transaction counts that sales are at all picking up. 

The total number of single family homes in contract is 304,000 now. That’s 3% fewer homes in the sales process than last year. Homes spend about 30-40 days in contract before the sale closes. So when we look at the whole set of homes with contracts pending, these are sales that will close in February and March so the first quarter of the year is already visible with even fewer sales than Q1 of 2024. if the weekly numbers were to suddenly pick up, that wouldn’t be reflected in the closed sales numbers until Q2. 

Like our inventory forecast, if the current trends don’t change soon, I expect we’ll revise down our forecast for home sales in 2025. As of the fall we had been expecting small sales growth this year, like 5%. It’s only 6 weeks into 2025, but so far the trends are going the wrong way. So keep your eyes open for that. 

Price Reductions

And we can see this demand weakness in the leading indicators too. There are more homes on the market now with price reductions from the original list price than in any February in many years. More price cuts than last year, more than 2023. 

As of this week 33% of the homes on the market have taken a price cut. That’s actually a slight fraction fewer than a week ago, which coincides with a pretty good new listing set this week. More fresh new listings mean as a percentage fewer homes on the market have taken a price cut. The purple line here is the curve for 2025. I’ve highlighted 2024 and 2023 too. In 2023, that’s the teal line, you can see that price reduction were improving each week with surprising demand that spring. We do not have those surprises now. 

The current price cuts data is one more factor that leads me to ask the question, could home prices turn negative in 2025? That hasn’t happened yet, but that’s what we’re keeping watch for. Stay tuned. 

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