High interest rates and broader economic headwinds made 2025 a difficult year for the real estate market, and prices took a tumble.
In December, median home prices declined 0.6% year over year nationwide, according to the Realtor.com® December 2025 Monthly Housing Trends report.
Regionally, prices fell 1.1% in the South and 1.8% in the West since the year-ago period.
One reason for these price declines is diminishing demand.
“It was a really slow 2025, and I think the big reason for that is economic uncertainty among buyers,” says Joel Berner, senior economist at Realtor.com. “People are really worried about their income and not really feeling like it’s a great time for them to make a move.”
The metro with biggest price drop was Austin
In the last 12 months, housing prices fell in 26 of the 50 largest metros year over year.
Of the 50 largest metros, Austin–Round Rock–San Marcos, TX, saw the biggest price drop in the last 12 months, with median home prices falling 7.3%.
“The main reason is inventory growth, especially in Austin, which had the largest price decline,” says Berner. “Inventory is above pre-pandemic levels, and there are just a lot of homes on the market. There are several reasons for that, but it seems that mortgage rates and affordability are keeping people out of the market and keeping things pretty slow.”
Berner says that, as a result, sellers are having to compete with each other a lot more. “We’re seeing a lot of price cuts and a lot of softness in those prices just because there are more homes on the market,” he explains.
The pandemic also has something to do with the reduction in Austin prices.
“In Austin, we have been all over the news as the No. 1 major metro to have prices go down, but it is simply because we had the most drastic spike during the pandemic,” says Samantha Midler of Austin Portfolio Real Estate. “Texas had looser restrictions and wide open spaces, so everyone and their mother moved here. It was an artificial demand that was crazy and unsustainable.”
Berner agrees, saying, “In some of these Sun Belt markets where prices just got super out of whack a few years ago, they are slowly getting back to where they should be.”
Midler says now that prices have come back down to earth, the market is starting to move.
“Buyers are getting used to the 6% interest rate range and are done waiting,” she says. “We are seeing more mortgage applications being filled out and buyers are getting off the bench.”
But Noa Levy, broker at The Boutique Real Estate in Austin, says some sellers are still resistant to lowering their prices. “In Austin in particular, many sellers are not under any financial pressure to sell and will only move forward if they achieve their desired pricing,” she says. “With the city’s higher median income, sellers can afford to wait until a buyer is willing to meet their expectations.”
Pair of California metros also saw major home price declines
Two metros in California ranked in the top five for large metros experiencing the biggest year-over-year price drops.
In San Diego–Chula Vista–Carlsbad, median home prices plunged 6.7% and San Jose–Sunnyvale–Santa Clara saw median home prices dip 5.5%.
California agent Cara Ameer tells Realtor.com, “When you have the perfect storm of higher interest rates, inflation, higher homeowners insurance costs, and high condo fees, buyers aren’t able to easily buy, and prices drop as a result.”
Since renting can be significantly more affordable than buying home in California, that also has an impact on home prices and demand.
“The affordability question really comes into play in California,” says Berner. “Folks feeling like they can’t afford a monthly payment is a big problem, so people are just choosing to remain renters.”
Berner says there’s a lot of softness in the rental market, especially out West.
“In some of those markets where people’s rents are stable or falling, they don’t really feel a fire to go buy a home, because they’re pretty comfortable where they are remaining as renters,” he explains.
Minneapolis and Washington, DC, also saw price slumps
The other cities that round out the top 5 of largest metros recording the most significant price drops in December are Minneapolis and Washington, DC.
In Minneapolis–St. Paul–Bloomington, MN-WI, median home prices ticked down 4.9%.
“Market conditions always dictate pricing. Certainly in many price points, interest rates and lack of buying power have had a profound impact,” Jeffrey Dewing of Coldwell Banker Realty in Minneapolis tells Realtor.com. “A lot of buyers, especially in the sub-million-dollar market, are waiting for interest rates to drop. We always see an influx in showing activity after interest rate drops are announced.”
However, he says, “Our buyers locally are more focused on finding the right home rather than waiting on the sidelines for price reductions, because good properties that are priced appropriately are moving swiftly.”
In Washington–Arlington–Alexandria, DC-VA-MD-WV, median list prices fell by 4.8%.
Recent mass layoffs, buyouts, and government shutdowns have shaken the traditional notion of federal employment as secure, fostering unease among workers and affecting local housing markets.
“There is considerable weakness in the first-time homebuyer market here. Many first-time homeowners are faced with uncertainty in the local job market. If we couple this with the interest rates, it makes first-time buyers reluctant to move forward,” Michael Schaeffer, a Coldwell Banker real estate agent in Washington, DC, tells Realtor.com.
Even so, Schaeffer says some sellers are opposed to reducing prices due to pandemic-level expectations. “We have had a number of sellers rent their properties rather than sell, unless it is an estate sale or a forced sale due to divorce or relocation.”
But he says, “If the perception of value is there, we are still seeing buyers offer above the list price, but these are isolated cases.”
