by Sophie Hayssen
Housing prices increased at the lowest rate in over a decade last year, signaling prospective buyers’ frustration with high prices amid a deepening affordability crisis.
Home prices increased only 1.3 last year, and 0.4% in December, according to the monthly S&P Case Shiller report issued Tuesday. Despite the modest growth, home prices fell 1.4 percentage points behind the 2.7% rate of inflation, a far cry from the first half of the year which saw real growth in prices. The decline in real home prices, beginning in May 2025, also marks a reversal from the previous decade where home prices outpaced inflation.
The housing market’s tepid price growth in 2025 underscores how long running concerns about affordability have slowed the market. The outlook for this year is that the market remains challenging for prospective buyers. In the immediate term, mild growth won’t do much for prospective buyers whose pockets are already stretched thin from the rising cost of living. As these buyers wait for affordable options, the market remains in limbo.
“We’re still not getting very good demand for housing. And the reason for that is because home prices are still very elevated” said Stan Shipley, managing director at Evercore ISI. “I think it’s just going to take a while before incomes are high enough to justify it.”
The temperature of the housing market varied greatly region by region. December Case-Shiller data followed recent releases that showed housing prices in Sun Belt cities like Tampa and Miami with the steepest declines due to excess housing development during the pandemic . Midwest and Northeastern cities with a relative lack of new development like Chicago and New York remained strong with price increases above 5% .
Those disparate trends seem poised to continue into 2026 as Redfin predicts New York and Midwest housing markets will heat up as those in Florida, Texas, and Tennessee cool even further.
There has been some progress towards affordability with mortgage rates falling from their 2023 peak of 8% to below 6% in late February this year. Among other positive signs, growth in salaries is currently outpaced the growth in home prices. Other reports, including those from Redfin and Zillow, forecast that 2026 will be the year of “The Great Housing Reset” where markets finally ease up for potential buyers once driven away by high costs.
“When we look at our forecast of 2026,we anticipate a more balanced housing market,” said Dr. Orphe Divounguy, a senior economist with Zillow. “Potential buyers who just haven’t had any luck, who haven’t had a lot of options to choose from, are starting to kind of see a market that’s a little bit more balanced, where the pendulum is shifting a little bit more in their favor.”
