Key Points:

• Rising inventory and affordability challenges are cooling price appreciation nationally.
  
  
• House prices have dipped below their peaks in 47 of the top 50 markets.
  
  
• Despite price declines, significant equity buffers remain for those that purchased over the boom period.

In February 2025, home buyers received some welcome news as mortgage rates fell and affordability improved by 1.6 percent over January, according to the Real House Price Index (RHPI). Annually, affordability improved by a more modest 0.6 percent. While mortgage rates in February were slightly higher than one year ago, a slowdown in national house price appreciation and positive income growth were enough to drive the improvement in affordability. 

The inventory of homes for sale continues to increase and move closer to historical norms. However, demand is stalling amid ongoing affordability challenges, leading to a pullback in demand and cooling national price appreciation. With the exception of a one-month uptick in annual house price acceleration in November, this slowdown has persisted since January 2024. However, house price trends vary by market, and house prices in some markets have fallen further and faster than others. Changes in house prices matter because house prices, along with mortgage rates and household income, are a key component of housing affordability.

“As of February, house prices have dipped below their respective peaks in 47 of the top 50 markets we track, which is 10 more than in the spring of last year.” 

Markets with Surging Inventory See Larger Price Declines

As of February, house prices have dipped below their respective peaks in 47 of the top 50 markets we track, which is 10 more than in the spring of last year. The only markets that continue to reach new price peaks are the historically more affordable markets of Detroit, Raleigh, N.C., and St. Louis, Mo.

The market with the greatest decline in house prices was Austin, Texas, where nominal house prices peaked in May 2022, but have since declined by 10.7 percent as the housing market continues to rebalance. Austin was at the forefront of the U.S. housing boom, making it a leading pandemic ‘boomtown.’ The dramatic increase in mortgage rates has had a significant impact on markets like Austin, which experienced some of the largest price gains during the pandemic. According to Zillow for-sale inventory data, active inventory in Austin has increased more than 40 percent since February 2020. Among the top 50 markets tracked, only New Orleans has seen a larger increase in inventory. The rising inventory in Austin means homes are staying on the market longer, prompting sellers to cut prices to attract prospective buyers.

San Francisco follows closely behind, as nominal house prices have declined nearly 10 percent from the market’s recent peak in April 2022. San Francisco is an example of a market that has long been among the most expensive. When mortgage rates increased and affordability declined, house prices in already expensive markets reacted sharply to the corresponding pullback in demand. Additionally, since February 2020, active inventory in San Francisco has increased by 16 percent, placing the city among the top 10 markets with the greatest inventory gains out of the top 50 markets.

However, while prices have declined from their respective peaks in these markets, much of the price growth that was gained during the pandemic remains. For example, in Austin, house prices increased 66 percent from February 2020 to May 2022. Similarly in San Francisco, prices increased 31 percent from February 2020 to April 2022. Even if house prices fall further, the decline would have to be substantial and persistent to erode all the equity that many homeowners accumulated during the pandemic boom.

Prices May Fall Further, But Not All the Way

In the fourth quarter of 2024, U.S. households owned $48 trillion in owner-occupied real estate. Of that, $35 trillion is equity, with just over $13 trillion in debt. Although equity levels dipped 1.4 percent from the previous quarter and 2.3 percent since the peak in the second quarter of 2024, they remain near historic highs. A 'higher-for-longer' mortgage rate environment will continue to dampen house-buying power, and with inventory increasing, it may extend the cooling trend for house prices. However, many potential home sellers gained significant equity during the pandemic, making it unlikely that price declines will offset all of these gains.

Sources:

•    First American Data & Analytics
•    Freddie Mac
•    Census Bureau

February 2025 Real House Price Index Highlights

The First American Data & Analytics’ Real House Price Index (RHPI) showed that in February  2025:

• Real house prices decreased 0.6 percent between February 2024 and February 2025.
  
  
• Real house prices decreased 1.6 percent between January 2025 and February 2025.
  
  
• Consumer house-buying power, how much one can buy based on changes in income and mortgage rates, increased 3.1 percent between February 2024 and February 2025, and increased 1.4 percent year over year.
  
  
• Median household income has increased 3.8 percent since February 2024 and 55.8 percent since January 2015.
  
  
• Real house prices are 35.7 percent more expensive than in January 2000.
  
  
• Unadjusted house prices are now 63.0 percent above the housing boom peak in 2006, while real, house-buying power-adjusted house prices are 5.0 percent below their 2006 housing boom peak. 

February 2025 Real House Price State Highlights

• The five states with the greatest year-over-year increase in the RHPI are: Maine (+6.6 percent), South Dakota (+6.1 percent), Rhode Island (+5.6 percent), North Dakota (+5.1 percent), and Michigan (+4.6 percent).
  
  
• The five states with the greatest year-over-year decrease in the RHPI are: Florida (-8.3 percent), Colorado (-6.6 percent), Mississippi (-6.5 percent), Texas (-6.2 percent), and Oregon (-5.2 percent).

February 2025 Real House Price Local Market Highlights

• Among the Core Based Statistical Areas (CBSAs) tracked by First American Data & Analytics, the five markets with the greatest year-over-year increase in the RHPI are: Louisville, Ky. (+10.2 percent), Cincinnati (+8.1 percent), Pittsburgh (+7.5 percent), Milwaukee (+5.4 percent), and Richmond, Va. (+4.1 percent).
  
  
• Among the Core Based Statistical Areas (CBSAs) tracked by First American Data & Analytics, the five markets with the greatest year-over-year decrease in the RHPI are: Tampa, Fla. (-15.8 percent), Atlanta (-9.6 percent) Orlando, Fla. (-8.7 percent), San Francisco (-8.7 percent), and San Diego (-8.5 percent).

Next Release

The next release of the First American Data & Analytics’ Real House Price Index will take place the week of May 26, 2025.

About the First American Data & Analytics’ Real House Price Index

The traditional perspective on house prices is fixated on the actual prices and the changes in those prices, which overlooks what matters to potential buyers - their purchasing power, or how much they can afford to buy. First American Data & Analytics’ proprietary Real House Price Index (RHPI) adjusts prices for purchasing power by considering how income levels and interest rates influence the amount one can borrow.

The RHPI uses a weighted repeat-sales house price index that measures the price movements of single-family residential properties by time and across geographies, adjusted for the influence of income and interest rate changes on consumer house-buying power. The index is set to equal 100 in January 2000. Changing incomes and interest rates either increase or decrease consumer house-buying power. When incomes rise and mortgage rates fall, consumer house-buying power increases, acting as a deflator of increases in the house price level. For example, if the house price index increases by three percent, but the combination of rising incomes and falling mortgage rates increase consumer buying power over the same period by two percent, then the Real House Price index only increases by 1 percent. The Real House Price Index reflects changes in house prices, but also accounts for changes in consumer house-buying power. 
 

Disclaimer

Opinions, estimates, forecasts and other views contained in this page are those of First American’s Chief Economist, do not necessarily represent the views of First American or its management, should not be construed as indicating First American’s business prospects or expected results, and are subject to change without notice. Although the First American Economics team attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. © 2025 by First American. Information from this page may be used with proper attribution.