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

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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.

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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.

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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.

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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.

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