Housing prices failed to keep up with inflation for eight straight months as the rate of annual growth fell.
National home prices reported a .9% annual gain at the start of the year, down from 1.1% in December, according to the monthly S&P Case Shiller report issued Tuesday. With inflation at 2.4% in January, real housing prices fell behind by 1.5 percentage points.
The latest release builds on the 2025 trend of a stalled market but offers some signs of optimism, particularly for buyers stretched thin by the affordability crisis. With mortgage rates below last year’s peak buyers may be ready to tip toe back into the market. However, the war in Iran threatens those gains.
A month into the war, mortgage rates, whose decline has been a key factor driving affordability climbed to 6.38% after a brief dip below 6% in February. Still, the relative improvement from last year may be enough to continue drumming up housing activity.
“We are expecting a year of recovery,” said Jessica Lautz, deputy chief economist and vice president of research at the National Association of Realtors. “So we do think that when we look at the major factors that are out there, affordability conditions, mortgage interest rates have improved, and also thinking about the inventory coming into the market, there’s more inventory than there was a year ago.”
Expanding inventory could prove key to bringing in more buyers. First-time buyers in particular are shut out of new developments, which trend upscale. So far, 2026 is shaping to be a difficult year for affordable builds as construction input prices surged even prior to the war. Rising oil prices would only add to the cost of construction materials.
The war’s impact depends on how long it lasts. Orphe Divounguy, a senior economist at Zillow, expects the housing markets to make steady improvements over the course of 2026. Yet a prolonged conflict could send the market back to the deepest doldrums of 2025.
“Buyers will tend to delay activity. They’ll tend to sit on the sidelines for a little while and hope it passes and then come back in the housing market later this summer,” he said. “But if the shock kind of lasts a much longer period, then it could be that people just wait out this period to move to the next spring home shopping season.”
In Tuesday’s report, less development friendly cities like Chicago and Midwest cities saw the greatest price increases.
For Nancy Meeks, a Milwaukee-based real estate agent with Keller Williams, the lack of inventory has led to a red-hot market, stressing both her and her clients.
“If you’re a real estate agent and the market gets hot, it means you’re chasing around a lot of different properties and writing an offer that’s one of 12, and you’re not going to get picked most likely,” said Meeks.
Sun Belt cities like Tampa and Dallas saw prices decline after prices and development boomed during the pandemic.
Among the greatest declines, the Dallas metro area saw an annual price decrease of 1.47%. Todd Luong, a local real estate agent with REMAX, still worries about how war-related inflation might affect his clients, but, for now, is encouraged by the market becoming more buyer friendly.
“It’s made it a lot easier for me, and it certainly makes the buyers more happy too,” said Luong. “They’re able to buy a home and buy at their terms instead of having to make uncomfortable decisions.”
