High interest rates and broader economic headwinds made 2025 a difficult year for the real estate market, and prices fell.
In December, median home prices fell 0.6% year-over-year nationwide, according to the Realtor.com® December 2025 Monthly Housing Trends report.
By region, prices fell by 1.1% in the South and 1.8% in the West from the same period last year.
One reason for this price drop is the drop in demand.
“It was a slow 2025, and I think a big reason for that is economic uncertainty among consumers,” he said. Joel Bernerchief economist at Realtor.com. “People are really worried about their income and they don’t feel like it’s a good time for them to take action.”
The most expensive metro was Austin
Over the past 12 months, home prices have fallen in 26 of the 50 largest metros for the year.
Of the 50 largest municipalities, Austin-Round Rock-San Marcos, TX, had the largest price decline over the past 12 months, with median home prices down 7.3%.
“The main reason is the growth in real estate, especially in Austin, which is going down in price,” Berner said. “Inventory is above pre-pandemic levels, and there are just too many homes on the market. There are a few reasons for that, but it seems like mortgage rates and affordability are keeping people out of the market and keeping things slow.”
Berner says, as a result, retailers have to be more competitive. “We’re seeing a lot of price reductions and a lot of softening in those prices simply because there are more homes on the market,” he explained.
This epidemic is also related to the reduction of prices in Austin.
“In Austin, we’ve been in the news as the No. 1 metropolitan area for rates going down, but that’s because we had a big spike during the violence,” he said. Samantha Midler of Austin Portfolio Real Estate. “Texas had free frontiers and open spaces, so everybody and their mother moved here. It was an artificial need that was crazy and incalculable.”
Berner agrees, saying, “In some of these Sun Belt markets where prices just got really bad in the last few years, they’re slowly coming back to where they should be.”
Midler says that as prices have come back down to earth, the market is starting to move.
“Consumers are used to 6% interest and have been waiting,” he said. “We’re seeing mortgage applications being filled and buyers getting off the bench.”
But Noah Levya broker at The Boutique Real Estate in Austin, says some sellers are still resisting the reduction in their prices. “In Austin in particular, most sellers are not under any financial pressure to sell and will only move forward if they reach the prices they want,” he said. “With the city’s median income high, sellers can afford to wait until the buyer is willing to meet their expectations.”
A pair of California metros also saw significant home price declines
Two California metros ranked in the top five largest metros experiencing the largest year-over-year price declines.
In San Diego-Chula Vista-Carlsbad, median home prices fell 6.7% and San Jose-Sunnyvale-Santa Clara saw home prices drop 5.5%.
California agent Dear Ameer tells Realtor.com, “When you have the perfect storm of high interest rates, inflation, high homeowner’s insurance costs, and high condo costs, buyers can’t buy easily, and prices go down as a result.”
Since renting is more affordable than buying a home in California, that also affects home prices and demand.
“The question of affordability really comes into play in California,” Berner said. “People who don’t feel they can afford the monthly payment is a big problem, so people just choose to stay in rent.”
Berner says there is a lot of softness in the rental market, especially in the West.
“In some of those markets where people’s rent is stable or falling, they don’t see the fire of buying a house, because they are comfortable where they live and rent,” he explained.
Minneapolis and Washington, DC, also saw price drops
Other cities in the top 5 metros that recorded the most significant price declines in December are Minneapolis and Washington, DC.
Minneapolis-St. Paul-Bloomington, MN-WI, median home prices fell 4.9%.
“Market conditions always dictate price. Certainly in many price areas, interest rates and lack of purchasing power have had a major impact,” Jeffrey Dewing of Coldwell Banker Realty in Minneapolis tells Realtor.com. “Many buyers, especially in the sub-million-dollar market, are waiting for interest rates to drop. We always see an influx in showing activity after an interest rate drop is announced.”
However, he says, “Our buyers in the area are more focused on finding the right home than waiting on the sidelines for a price drop, because good properties at the right price go quickly.”
In Washington-Arlington-Alexandria, DC-VA-MD-WV, median list prices fell 4.8%.
Recent mass layoffs, buyouts, and government shutdowns have shaken the traditional view of corporate employment as secure, fueling unease among workers and affecting local housing markets.
“There is a lot of weakness in the first-time buyer market here. Many first-time home owners are facing uncertainty in the local job market. When we couple this with interest rates, it makes first-time buyers hesitant to move forward,” Michael Schaeffera real estate agent with Coldwell Banker in Washington, DC, tells Realtor.com.
Still, Schaeffer says some retailers are resisting price cuts because of the expected scale of the pandemic. “We’ve had a number of sellers who are renting out their properties rather than selling them, unless it’s an estate sale or a forced sale due to a divorce or a move.”
But he says, “If the value proposition is there, we still see buyers offering more than the list price, but these are isolated cases.”
