Washington, D.C. – December 11, 2025 – Home prices go negative for the first time in over 2 years, marking a seismic shift in the U.S. housing market as annual growth dips into decline amid soaring mortgage rates and cooling demand. This long-awaited home price correction, driven by Federal Reserve rate hikes since mid-2023, has stunned economists and ignited hope among first-time buyers searching for affordable entry points in a market frozen by affordability woes.
The bombshell data, drawn from the latest S&P CoreLogic Case-Shiller Home Price Index released today, shows the national composite index contracting by 0.5% year-over-year – the first negative reading since June 2023. This reversal caps a brutal stretch where home price growth slowed from double-digit surges during the pandemic boom to a crawl, finally tipping over the edge as inventory climbs and buyer hesitation peaks. For context, the index – which tracks repeat sales of single-family homes across 20 major metros – hit a record high of 343.06 in May 2025 before sliding to 338.25 in September, with today’s update confirming the downward trajectory.
Diving deeper, the decline isn’t uniform. Sun Belt hotspots like Austin, Texas, and Phoenix, Arizona – pandemic darlings that saw explosive gains – are leading the freefall, with home values down 20.5% and 9.7% from their peaks, respectively. Zillow’s analysis reveals a staggering 53% of U.S. homes have lost value over the past 12 months, the highest share since 2012, as remote work fades and investors bail on overleveraged properties. Meanwhile, Northeast and Midwest markets like New York and Chicago buck the trend with modest gains of 7.2% and 6.6%, fueled by steady demand and limited supply.
This home price correction stems from a perfect storm. Mortgage rates, hovering near 7% after the Fed’s aggressive hikes to combat inflation, have locked out millions – with monthly payments on a median $439,000 home now topping $3,000, up 50% from pre-pandemic levels. Sellers, facing stagnant wages and rising costs, are slashing asks: Realtor.com reports median list prices dropped for the first time in two years this fall, with price-per-square-foot declines in 40% of metros. Add in a 20% surge in active listings since 2023, and the power dynamic has flipped – buyers now hold the cards in once-frenzied markets.
Experts are sounding alarms and opportunities. Housing analyst Melody Wright warns this could escalate into a “price correction worse than 2008,” predicting a 50% national drop by late 2026 as institutional investors dump non-performing assets, potentially flooding the market with foreclosures. “It’ll devolve faster this time – no banks to bail out the mess,” she told Thoughtful Money, citing median incomes of $81,604 clashing with home prices triple what affordability models suggest. On the flip side, S&P Dow Jones Indices’ Nicholas Godec sees stabilization: “This downshift to inflation-parity growth – or slight declines – aligns housing with economic fundamentals, paving the way for a healthier rebound.”
Public reaction? It’s a powder keg on social media. Reddit’s r/RealEstate is ablaze with threads like “Home values declining in over half of major U.S. metros,” where users from Austin report neighbors slashing prices by $35,000 just to move. One viral post quipped, “Finally, the bubble pops – but at 8.5% rates, who’s celebrating?” Optimists point to Zillow’s note that 96% of homeowners still sit on positive equity, up 67% since last sale, cushioning against mass distress. Yet, first-time buyers – now just 26% of purchases per NAR – vent frustration over family loans becoming the norm to bridge gaps.
For everyday Americans, this home price correction ripples far beyond listings. In a nation where homeownership anchors 65% of household wealth, negative growth erodes retirement nests for 50 million boomers eyeing downsizes, while millennials and Gen Z face a ladder rung that’s slipped further away. Economically, it’s a drag: The $1.6 trillion housing sector, which juices 15% of GDP through construction and sales, could shed 200,000 jobs if declines deepen, hitting Rust Belt builders and Sun Belt realtors hardest. Lifestyle-wise, frozen mobility traps families in outdated homes, delaying relocations for jobs or schools amid a sluggish 2.5% job growth pace. Politically, it’s fodder for 2026 midterms – with affordability crises in swing states like Pennsylvania and Georgia fueling calls for zoning reforms and rate cuts.
Buyers’ intent is shifting fast: Searches for “is now a good time to buy a house” spiked 40% post-report, per Google Trends, as opportunistic shoppers eye negotiations in cooling metros. Sellers, meanwhile, grapple with “wait or list?” dilemmas, with Redfin advising price tests in high-inventory zones. Lenders are adapting too, pushing adjustable-rate mortgages to ease sticker shock, though experts urge caution against overextending.
This negative turn in home prices – the first since mid-2023 – underscores a market maturing out of its fever dream. While short-term pain looms for equity holders, it heralds relief for sidelined buyers and a potential reset toward sustainable growth. As inventory builds and rates flirt with easing, 2026 could usher in the thaw – but only if policymakers tread carefully to avoid a deeper chill.
By Sam Michael
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