Real Estate

Will U.S. Home Prices Fall? Experts Weigh In on Market Stabilization and Future Trends

U.S. home prices are stabilizing, but a dramatic price drop is unlikely, experts say.

byAndres Castro

November 3, 2025, 9:23 AM

Aerial view of a modern, planned suburban housing development with many identical homes and winding streets.

An aerial view of a typical American suburban residential area in Rochester, NY. By MDL.

Executive Summary

U.S. home prices are stabilizing after years of rapid appreciation, with experts predicting no dramatic decline despite recent easing of mortgage rates and minor rent reductions in some cities.

Factors sustaining high prices include rising construction costs, a “lock-in effect” deterring homeowners with low pandemic-era interest rates from selling, and increased competition from corporate and cash buyers.

Experts anticipate prices will level out, allowing incomes to catch up, but foresee a long-term shift to weakening demand due to declining household formation rates and potential reductions in immigration, a stated policy goal under the Trump administration.

The Trajectory So Far

The recent stabilization in U.S. home prices follows years of rapid appreciation, largely driven by a pandemic-era surge fueled by exceptionally low mortgage rates, a significant supply shortage, and pent-up demand, which escalated prices to record highs relative to average incomes. This created an affordability crisis, prompting state and local governments to implement policy interventions like zoning reforms and rent caps. However, a dramatic price decline is not anticipated due to a “lock-in effect” where homeowners with low pandemic-era interest rates are reluctant to sell, combined with persistently high construction costs, and potential future demographic shifts and immigration policies under the Trump administration that could impact demand.

Assessing Risk and Value

While U.S. home prices are stabilizing rather than dramatically declining in the short term, supported by persistent construction costs and a “lock-in effect” reducing inventory, investors should temper expectations for significant future appreciation. The projected long-term weakening of demand, driven by demographic shifts like an aging population and potentially lower immigration rates as seen under the Trump administration, introduces a risk of decelerated price growth or even lower housing costs over the next decade, impacting the long-term value and return on real estate investments.

Expert Predictions and Forecasts

Daryl Fairweather, chief economist at Redfin, and Nadia Evangelou, a senior economist at the National Association of Realtors, predict that prices for new builds will remain elevated due to rising construction costs and federal tariffs, while a “lock-in effect” among current homeowners and increased corporate/cash purchases will sustain overall high prices by limiting market turnover.

Chris Herbert, managing director of the Harvard University Joint Center for Housing Studies, expects home prices to level out over the next few years, allowing incomes to gradually catch up and improve overall affordability.

Chris Herbert also forecasts that on a longer timeline (three to five years and beyond), shrinking demand driven by declining household formation rates and potentially reduced immigration (a stated policy goal under the Trump administration) is projected to eventually lead to lower housing costs, shifting the market conversation from supply shortages to demand weakness.

Home prices in the U.S. have begun to stabilize in recent months following years of rapid appreciation, though real estate experts do not foresee a dramatic decline in costs. This stabilization comes as mortgage rates have slightly eased and some cities experience minor rent reductions, signaling a potential shift in the housing market dynamics driven by a mix of policy interventions, evolving buyer behavior, and demographic trends.

Market Dynamics and Price History

The housing market has seen substantial growth since the onset of the pandemic, with the median sales price for a new house reaching $413,500 in August, a significant increase from $321,400 five years prior. This surge has pushed average home prices to five times higher than average incomes, an unprecedented record. Rental costs also experienced sharp increases, particularly during the pandemic, outpacing overall inflation last year.

State and local policymakers have been actively addressing the rising shelter costs for the past decade. Efforts include rewriting zoning codes to encourage low-cost housing development, such as permitting accessory dwelling units and, in some areas, banning single-family zoning. State-level initiatives have also introduced rent caps, promoted denser housing, and sought to limit local housing regulations.

Recent Stabilization and Expert Outlook

These policy efforts, combined with other market forces, have contributed to a recent slowdown in price growth. While prices are not generally falling, their rate of increase has moderated. Mortgage rates have recently dipped to around 6 percent, down from a steady 6.5-7.5 percent in previous years. Furthermore, some major cities that saw a boom in apartment construction have experienced slight declines in rent.

Despite these signs of stabilization, analysts largely agree that a dramatic drop in housing costs is unlikely. Daryl Fairweather, chief economist at Redfin, notes that the housing construction boom initiated during the pandemic is concluding. Construction costs continue to rise, with future increases anticipated due to federal tariffs, which will keep prices for new builds elevated.

Chris Herbert, managing director of the Harvard University Joint Center for Housing Studies, explains that homeowners often resist selling their properties for less than their purchase price, anchoring expectations in their mortgage payments and psychology. He highlights that previous price spikes were influenced by factors like demographic shifts, regional economic growth, and easy mortgage access before the 2008 recession. The recent surge was fueled by a supply shortage, pent-up demand, and exceptionally low mortgage rates around 3 percent during the pandemic, alongside a temporary suspension of student loan payments that boosted purchasing power.

Nadia Evangelou, a senior economist at the National Association of Realtors, points to a “lock-in effect” where homeowners with low pandemic-era interest rates are reluctant to sell, knowing new mortgages would likely be higher. This dynamic reduces housing market turnover. Additionally, increased competition from large corporations acquiring single-family homes and a rise in cash purchases, particularly in markets like Florida, further contribute to sustained high prices.

Anticipating Future Trends

Looking ahead, Herbert expects home prices to level out over the next few years, allowing incomes to gradually catch up and improve overall affordability. However, on a longer timeline, he suggests that shrinking demand could eventually lead to lower housing costs. The rate of household formation has declined significantly since its pandemic peak and is projected to remain historically low over the next decade due to demographic trends, including an aging baby boomer population and fewer children in young families.

Herbert also noted that a significant drop in immigration, a stated policy goal under the Trump administration, could further reduce the household formation rate. He predicts that within the next three to five years, the housing conversation will shift from concerns about supply shortages to discussions about the weakness of demand.