Could home prices turn negative this year? by Mike Simonsen for HousingWire

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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 price 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.

Home prices see slight downtick 

Home price appreciation is waning on average across the country. Home prices finished 2024 up about 4% to 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 downtick from a week ago and is just 2% higher than last year at this time. 

Most years we see about 5% home price appreciation. So, 2% right now is weaker home than normal. It’s not negative, but I find it useful to think of home prices as virtually flat and unchanged from a year ago.

Homebuyer demand remains weak and it shows in sales prices. It’s not accurate to say that home prices are falling. Now is less of ‘home prices are falling’ and more like ‘home prices are staying flat for a long time.’ The best, well-priced properties are selling quickly in most of the country. The scenario across the country is that the sunbelt markets have a lot of inventory, and those southern cities are 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. 

Inventory sees a healthy rise

There are 638,000 single-family homes unsold on the market around the U.S. 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 an 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. Inventory has been about 27% to 30% more than the year prior for six 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. 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 jump

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, D.C., 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 D.C. Metro had about 450 single-family homes and another 450 condos newly listed in the last week. That is about 50% fewer than D.C. used to see in February in the years’ prior to the pandemic.

Home sales run behind last year

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. 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 six weeks into the 2025, but so far the trends are going the wrong way. So keep yours eyes open for that. 

Price reductions are higher than last year

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 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 it’s worth watching.

Mike Simonsen is the founder of Altos Research and will be a featured speaker at the Housing Economic Summit in Dallas on Feb. 26. Learn more here.

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