Summary of "The Best News We’ve Had in 3 Years | Dec. 2025 Housing Market Update"

The Best News We’ve Had in 3 Years | Dec. 2025 Housing Market Update

Presenter: Dave Meyer, Housing Market Analyst, Head of Real Estate Investing at Bigger Pockets

Key Finance-Specific Content Summary

1. Housing Market Overview & Home Prices

Price Movement:
- Home prices increased 1.4% year-over-year (Redfin data), indicating a mild correction rather than a crash.
- Appreciation rates have cooled significantly from 5% a year ago to near flat, below the long-term average of approximately 3.5%.
- Regional differences include:
  - About 105 of the top 300 metro markets are experiencing price declines (up from 31 in January, peaked at 110 in June).
  - Largest declines are concentrated in Florida (e.g., Punta Gorda -13%, Cape Coral -10%, Northport, Sarasota, Naples), the Gulf region (Texas, Louisiana), and some markets in California, Washington, and Denver.
  - Midwest markets such as Chicago, Milwaukee, and Cleveland still see positive appreciation but slowing to 2-3% from 6-7% last year.

2. Mortgage Rates & Affordability

Mortgage Rates:
- Rates declined from a peak of 7.25% in early 2025 to about 6.25% currently.
- This 1% drop improves affordability and attracts more buyers to the market.
- Predictions for 2026 suggest rates may stay in the low 6% range or possibly dip into the high 5% range if Federal Reserve rate cuts and Treasury yields fall.
- The spread between Treasury yields and mortgage rates is narrowing, supporting potential further rate declines.
Refinancing:
- Refinancing is becoming attractive as 3.1 million mortgage holders are now “in the money” to refinance with at least a 0.75% rate reduction.
- Refinancing can save hundreds of dollars monthly, especially for those with rates in the 7-8% range.
- Caution is advised against waiting too long, as rates may rise again.
Affordability:
- Although prices are up 1.4%, inflation is around 3%, so inflation-adjusted home prices have effectively declined, improving affordability.
- Wage growth relative to home prices is also improving affordability.
- However, affordability remains near 38-year lows, so improvements are from a very challenging baseline.
- Twelve of the 100 largest U.S. markets (mostly in the Midwest) have returned to long-run average affordability.

3. Inventory & Seller Behavior

Inventory Trends:
- Inventory growth slowed from 25% year-over-year in early 2025 to just 4% by October 2025.
- Inventory remains about 200,000 homes below pre-pandemic (October 2019) levels.
- New listings are flat year-over-year (+0.4%), contradicting claims of panic selling or flooding the market.
Delistings:
- Delistings (homes pulled off the market for 31+ days without sale) are at the highest level since 2017.
- Sellers are withdrawing listings due to poor sales conditions rather than lowering prices.
- Delistings are concentrated in buyer-favored markets like Austin, Miami, Fort Lauderdale, Dallas, and Denver.
- Only about 20% of delisted properties have relisted so far, suggesting sellers may hold off on selling for longer.
- Seasonal relisting is expected in spring but unlikely to return to 100%.
Implication:
- Inventory stabilization and rising delistings support a market correction rather than a crash.
- Sellers are exercising control by waiting out the market rather than panic selling.

4. Market Stress: Underwater Mortgages, Delinquencies, Foreclosures

Underwater Mortgages:
- Approximately 900,000 homes are underwater (~1.5% of mortgage holders).
- Being underwater is not an emergency; it is common during corrections.
- Foreclosure risk arises only if borrowers stop paying their mortgages.
Delinquencies:
- August 2025 delinquency rates increased by 16 basis points (0.16%) year-over-year, the first rise after several months of decline.
- Delinquency rates remain below pre-pandemic (2019) levels, indicating normal market conditions.
- FHA and VA loan delinquencies are rising post-moratorium expiration, warranting monitoring as a potential early warning sign.
Foreclosures:
- Foreclosures are up 6% year-over-year, expected as pandemic-era low levels normalize.
- Foreclosure starts (early stage) are down 10% year-over-year, suggesting no acceleration in distress.
Overall Stress Assessment:
- Slightly elevated stress compared to last year but no emergency or crash signals currently.
- Stability is supported by continued mortgage payments and moderating inventory and affordability trends.

Methodology / Framework Highlights

Assess home price changes nationally and regionally.
Evaluate mortgage rate trends and their impact on affordability.
Monitor inventory growth rates, new listings, and delistings to understand supply dynamics.
Analyze underwater mortgage prevalence and delinquency/foreclosure data as distress indicators.
Compare current data to pre-pandemic baselines for context.
Consider seasonal patterns and seller behavior in inventory and pricing dynamics.
Use Treasury yields and Federal Reserve policy as macroeconomic indicators influencing mortgage rates.

Explicit Recommendations / Cautions

Consider refinancing if holding a mortgage at 7% or higher to save on cash flow, but be mindful that rates can fluctuate.
Sellers should avoid panic selling; delisting is a rational response to current market conditions.
Investors and homeowners should watch FHA/VA loan delinquency trends as potential early distress signals.
The housing market is in a correction phase, not a crash; expect flat or slightly declining prices nationally.
Affordability is improving but remains challenging; gradual progress is positive.
Monitor inventory and seller behavior closely as key indicators for market direction.

Disclosures

The presenter states no benefit from portraying the market positively or negatively; this is a data-driven analysis only.

Unforeseen black swan events (e.g., pandemic, 9/11) could disrupt the market unexpectedly.

Underwater mortgages do not automatically lead to foreclosure or a market crash.

Presenter: Dave Meyer, Housing Market Analyst and Head of Real Estate Investing at Bigger Pockets.