Are Home Prices Declining? What to Know

The question of whether home prices are declining is a common inquiry, reflecting a natural concern about one of the largest financial assets for most households. The real estate market is a dynamic system, influenced by economic and social factors, making a simple “yes” or “no” answer insufficient without a broader understanding. This article aims to provide insights into the current state of home prices and the underlying forces shaping them, offering a clearer picture of the market’s complexities.

Current Market Snapshot

After a period of significant appreciation, the national housing market is currently experiencing a general deceleration in price growth. National home prices saw a modest increase of 0.2% year-over-year between July 2024 and July 2025, a slower rate compared to the 2.8% growth observed in the preceding year. This indicates a shift towards a more stable market at the national level. The Zillow Home Value Index reports the average United States home value at $368,581, reflecting a 0.3% increase over the past year.

While the national average shows slight appreciation, conditions vary across regions. As of July 2025, 105 of the nation’s 300 largest housing markets (about 35%) experienced year-over-year price declines. This indicates a gradual shift in the supply-demand balance in some areas compared to earlier in 2024. Despite localized declines, home prices continue to climb in many regions, particularly where active inventory remains below pre-pandemic levels, such as parts of the Northeast and Midwest.

The overall number of homes sold nationally saw a 2.1% decrease year-over-year in July 2025, with 473,987 homes sold compared to 484,141 homes in July of the previous year. Concurrently, the number of homes for sale increased by 7.2%, suggesting a slight easing of inventory constraints. This combination of decelerated price growth and increased inventory points to a market becoming less competitive than in recent years, yet still maintaining upward price momentum in many areas.

Key Factors Influencing Home Prices

Several economic and market forces directly influence home prices. Understanding these factors provides context for observed trends and helps anticipate future movements, shaping affordability and buyer behavior.

Interest rates play a significant role in determining housing affordability and buyer demand. When mortgage interest rates are low, borrowing becomes less expensive, increasing purchasing power and encouraging buyers. Conversely, higher interest rates reduce affordability by increasing monthly mortgage payments, cooling buyer demand and potentially putting downward pressure on prices. Current national average 30-year fixed mortgage rates are around 6.7%, down slightly year-over-year, which can offer some relief to prospective buyers.

The fundamental principles of supply and demand are particularly evident in the housing market. Home prices tend to rise when demand for housing outstrips available supply, creating a seller’s market where competition drives up prices. Conversely, an oversupply of homes relative to buyer demand can lead to price reductions as sellers compete for fewer interested buyers. The United States has faced a housing shortage, with inventory levels, measured in months of housing supply, still below historical averages, though they have increased from record lows.

Broader economic health, including employment rates and consumer confidence, influences the housing market. A strong job market with low unemployment and rising wages generally leads to increased consumer confidence and greater purchasing power, which fuels housing demand and supports higher home prices. Conversely, periods of economic uncertainty or high unemployment can deter potential buyers, leading to decreased demand and potentially falling prices.

Inflation can also impact housing values and construction costs. Rising inflation often translates to higher costs for building materials and labor, which can increase the price of new homes and, by extension, influence the value of existing properties. Persistent inflation can contribute to reduced affordability for buyers by eroding purchasing power, especially when wage growth does not keep pace.

Understanding Local Market Dynamics

Real estate markets are inherently local. Conditions can vary significantly from one city, county, or even neighborhood to another, influenced by a unique combination of regional factors. It is essential to look beyond national averages when evaluating property values and market opportunities.

Local economic conditions, such as job growth and the health of specific industries, profoundly impact housing demand. Areas experiencing robust job creation tend to attract more residents, increasing competition for housing and driving up prices. Conversely, regions with declining industries or high unemployment may see reduced demand and stagnant or falling home values. For example, a 1% increase in employment can lead to a 1.5% increase in housing prices.

Population shifts and demographic changes also play a significant role in shaping local housing markets. An influx of new residents increases housing demand, while an aging population or outward migration can lead to decreased demand. Local housing policies, including zoning laws, building permits, and property taxes, can further influence supply and affordability. These policies can either restrict or encourage new construction, affecting home availability and prices.

Specific neighborhood amenities, such as the quality of local schools, proximity to transportation, access to healthcare facilities, and the presence of parks or vibrant commercial areas, enhance a property’s desirability and value. A home in a highly-rated school district, for instance, might command a higher price than a similar home in an area with less desirable schools. These localized attributes contribute to the unique characteristics and pricing of properties within distinct communities.

Interpreting Real Estate Data

To accurately assess home prices and market conditions, it is helpful to understand key real estate metrics and how to interpret them. These data points offer insights into the current state of supply, demand, and market speed, providing a more comprehensive view than simply looking at raw price figures.

The median sale price is a widely used metric that represents the middle value in a dataset of home sales, meaning half of the homes sold for more and half sold for less. This measure is preferred over the average sale price because it is less susceptible to being skewed by a few unusually high-priced or low-priced sales, providing a more accurate representation of typical home values. For instance, if a few luxury homes sell in a given month, the average price could be inflated, whereas the median would remain a more reliable indicator of the market’s midpoint.

Days on Market (DOM) indicates the number of days a property has been listed for sale until an offer is accepted. A low DOM suggests a fast-paced market with high demand, where homes are selling quickly, often at or above asking price. Conversely, a high DOM indicates a slower market, potentially signaling overpriced or less desirable properties. The median days on market nationally was 43 days in July 2025.

Inventory levels refer to the total number of homes available for sale. This metric is often expressed as “months of supply,” which calculates how long it would take to sell all existing homes at the current sales pace. A low inventory level, typically less than five to seven months of supply, indicates a seller’s market with limited choices for buyers and potential for price increases. A high inventory level, exceeding seven months, suggests a buyer’s market, where supply outstrips demand, potentially leading to price stabilization or declines.

Sales volume represents the total number or dollar amount of properties sold within a specific timeframe. Changes in sales volume can indicate shifts in market activity and buyer confidence. A rising sales volume generally suggests a healthy and active market with strong demand, while a declining volume can signal a slowdown or reduced buyer interest.