Home Prices Fell. Buying a House Got More Expensive. What?!

The real estate market is finally starting to show its true colors. Prices are falling, inventory is rising and the buyers are disappearing, and I will even tell you what is happening with renters, who are defaulting on their payments. The economy is very fragile, and you can see that in what happened in the elections last week. Let's dig into what is going on in the real estate market that you need to know if you are a buyer, seller or investor.

Number one: prices are falling and payments are up 11.1%, mostly because rates have been moving up due to the oil shock from the Iran war and fears about the economy. The monthly payment is up to $2,777 per month, and a lot of people cannot afford that. Here is an example from Jacksonville, Florida. The median household income is $68,000, but to purchase a house you need about $120,000 to afford it. The numbers have completely broken down.

Active listings are moving up every single month. Asking prices are slightly up, but sale prices are down. New listings are actually down, so people are not listing their homes as much as in prior years. We are seeing this across the board. You would expect more new listings to come on, but instead active listings just keep stacking while new listings stay relatively steady. The reason is that people are locked into the lower mortgage rates from the 2020 to 2021 boom.

Now the big scary factor: pending sales are crashing. They are down 16.4%, and they have been falling for months. It is looking like next year will be another challenging year with a record low number of sales.

The Midwest right now is up, and here is why. People are looking for affordability. They are trying to find places where their wages make sense for the cost of living, where they can settle down and buy a house. Some areas are starting to slow and some are holding up. The Southeast is now up 1.3%. But the rate of growth almost everywhere is starting to slow, because higher mortgage rates are like financial gravity on the real estate market, and I do not expect this to keep up forever. Right now you just have pockets with a demand shock driven by affordability, as people adjust where they can live and get the best bang for their buck.

One of the crazy factors, with each market whipsawing up and down, is that the condo market is really weak, especially in Colorado. Colorado condo price per square foot is back to December 2021 numbers. This comes from Jason Lewis at Parcl Labs. Prices peaked, came back down, and now they are trickling around through the seasonal cycle. There is a lot of pain ahead, because inventory keeps stacking up. Prices are still slightly up from 2020, but they are starting to correct. We are not just seeing this in Colorado. We are seeing it in Florida and Texas and in other markets, even Washington state. This is no longer just a Sun Belt story. Condos and townhouses correct first, which is what we usually see during corrections, and single-family comes last. There is also a major issue that rents are not keeping up, which changes the entire calculus for investors.

We are seeing that 43% of homes this year have had their price cut. That is larger than the 2022 to 2025 period, and I expect it to keep drifting up into the end of the year and into next year as more inventory hits the market. People have to move and make decisions, and sellers start to bring their prices down. Existing sellers and the new construction they compete with will have to bring prices down. Comment below: are you a buyer, seller, investor or agent, and what are you seeing in your market? Here in Jacksonville and across Florida we are definitely seeing a ton of price cuts, especially to stay competitive against new construction.

Rates have come back down a bit. We just had a spike to about 7.5% for the mortgage rate, and it moved back down to 7.18%. But just a year ago it was 6.22%, so we are almost a percentage point higher. Every 1% increase in the mortgage rate reduces purchasing power by about 10%, so this is a huge deal. If rates keep moving up, there will be a lot more pain for the real estate market. If they stay here, it will be a slow, steady grind. If they move down, buyers will come off the sidelines. Right now the market is basically frozen, stuck in time until sellers give up on price, which I believe will be the story for the next decade: sellers bringing prices down while inventory keeps stacking up.

One of the things we watch is mortgage spreads, how much higher the mortgage rate is than the 10-year Treasury. Spreads have moved higher. That means investors see these mortgages as riskier and do not want to bet on them as much as on the U.S. government. It is a red flag. Across the whole financing chain, from origination to securitization to packaging the loans and selling them, investors are saying, "If we take the risk on these mortgages, we need more yield." I expect the spread to keep widening, especially as prices come down, because that makes the mortgages riskier.

You can see the spike we had, mostly due to the Iran war and oil prices pushing up inflation numbers. Then we had the rate hike, and it came back down a bit. Now we are at a pivot point. If rates go up from here, the market will stall. If they go sideways, the market goes sideways. If they go down, buyers come back. Mortgage rates are now driving most of the market, because there is demand for sure. People just cannot afford today's prices.

I have seen statistics saying 60% of people are living paycheck to paycheck, and others saying 68%. So every 1% increase can push a buyer to stay a renter, and it is a huge problem for society when the next generation is not bought in to the future of this country, either through equities or through owning real estate. But honestly, this has practically all been caused by nonstop government spending causing inflation and pricing out the middle class. I am not a political guy. I like to look at how each policy affects the mortgage and housing markets. Right now I think neither side really cares about the budget deficits or the amount of debt we carry, and that is one of the most important things we need to focus on, because the middle class is getting priced out.

The U.S. purchase mortgage application index is an indicator of that. People are not even applying for loans to buy a house at this point in the cycle, while the government keeps spending no matter who is in charge. There was the DOGE effort, which did not do anything significant to fix this. I expect mortgage demand to keep falling over the next couple of months until prices correct. It will be a slow, steady grind. Real estate is an illiquid asset class, so it takes time for these assets to process through. You are looking at maybe a three- to five-year period, if rates stay at this level or higher, for prices to grind down, and purchase applications will stay lower as well.

Existing owners have loans at about 4.3%, so they do not have much incentive to sell and move. They would give up their 4.3% and move to 7.3%, paying about 3% more. When they run the numbers, a lot of them stay put. That is part of why we see fewer new listings: people know they cannot afford to move. Existing sellers who want to move face the same affordability crisis new buyers face, because we live in a payment economy. Sadly, most Americans are loaded with debt, living paycheck to paycheck, and cannot make the switch. If rates come down, I expect a lot more transactions. If they stay elevated, I think we will keep stalling.

This is a huge story. Owners 65 and older own homes at about twice the rate of those under 35: around 80% versus 36%. The median age of a homebuyer today is close to 60, and the median first-time buyer is 40. It is the older generations who are transacting, because they have the cash and the equity from homes they bought years ago, and they are reallocating it into a new home or buying with cash. What happens over the next 20 years, as many of those homes come up for sale? Who will buy them? That is part of why I have a long-term bear case on housing. Population growth has slowed, and domestic migration has dropped in many areas that are no longer affordable for the middle class. Who is going to buy at today's prices, or higher tomorrow? Tell me in the comments. I would love to hear the counterargument. Some people say demand is cyclical, but you still need a good-paying job to afford these prices, around $120,000 a year, and most households in America do not earn that. You have to look closely at the median-priced home and what the payment actually is.

New listings are stuck at 2024 and 2025 levels. They are not really rising because of the lock-in effect for owners who got low rates in 2020 and 2021. If single-family listings spike at any point, I think that would be a red flag for more distress. In Florida we are seeing short sales every single week, and foreclosures are jumping for people who bought between 2022 and 2025. Those vintage years are rough. They bought at the peak, they are down 10% to 20%, and buying and selling costs around 8%, so they are trapped, and if they lose a job they can only hang on for so long. New listings could pick up if we start to see job losses.

Here is an interesting chart: no one wants to sell, yet supply is up to 1.16 million listings nationally, within 5% of 2019. Homes for sale are back near 2019 levels, and I expect we could even get back to 2016 levels. I do not think pricing gets back to 2016 levels, but I could definitely see prices go back to 2020 levels at some point. Prices are one of the last things to fall. First transactions slow, then listings pile up, then distress shows up in prices. We are in the early innings of a price correction. I think it hits the Sun Belt first and then spreads, depending on how close you are to new construction, because Sun Belt markets are overdeveloped in single-family, multifamily and other products, built on the expectation that demand would continue. It has not.

One of the red flags: 6.8% of sellers are asking less than they paid. People are already losing money. Colorado is one of the pain points at about 12%, and there is pain in Florida and Texas too, again for the 2022 to 2025 purchases. If you are buying in today's market, be careful and negotiate. If you want to connect with a top agent who knows your area, let me know. We have a strong referral network through the company. You can also go to movewithmomentum.com to research data across the country, including ZIP code data, neighborhood data and individual listings for Georgia and Florida, where we are primarily based.

Homes are closing 1.9% under their final asking price, which is $9,500 back on a $500,000 home. This chart also shows seasonality. Sellers give up less during the busy season, basically March through August, because in February people get tax refunds and use them toward a down payment. When school starts in August, transactions usually slow, and sellers give up more because there are fewer buyers. That is why it is a big problem that so many buyers are priced out. Sellers will eventually have to reduce their prices.

The story is not the same everywhere. Inventory in the South and West is now about 15% above pre-pandemic levels. The Midwest has a little more inventory coming on, and the Northeast has the least because it did not have the construction boom we had in the South. It is a tale of two markets, speculative and less speculative, and one is performing better than the other. I think the Midwest and Northeast will add inventory, just not at the rapid rate of the speculative markets in the South. If you are a buyer, watch inventory. If a lot is coming on, it might make sense to rent another year and watch the market. If you are a seller, it is time to get realistic and price to get out before values fall further. If inventory returns to 2019 levels in the Midwest or Northeast, it will be painful for sellers trying to sell near today's prices, where the math makes no sense to underwrite. Most of the time you can rent a similar house for about $1,500 less than buying it. The math rarely breaks, but it is totally broken right now.

Homes that will not sell are becoming rentals. We call these accidental landlords. Sometimes I call it rage quitting: the seller cannot sell, blames and fires their agent, and turns the house into a rental. These are the major metros with the highest share of accidental landlords, and you can see the Sun Belt. Texas, Florida and Georgia have the largest issues, a little in the Northeast, and Colorado is leading the pack, with so much construction to keep up with demand that then dropped off drastically.

One of the leaders is Austin, Texas. If you have not been watching, rents there are declining 10%, 20%, 30%, and I have heard prices have dropped 40% from the peak in some areas. Austin went from 36 points ahead to 35 points behind from its peak, one of the worst markets. Eventually prices get low enough that the math works for investors, but what I hear on the ground is that rents are falling quickly too, which keeps investors on the sidelines until demand comes back. Boom and bust markets tend to overcorrect, and I think the Sun Belt will overcorrect in a slow grind down, with Austin and parts of South Florida leading these swings.

Here is a really interesting story: new homes now sell for less than existing homes. In the Sun Belt, builders massively overbuilt $600,000 to $800,000 starter homes, expecting buyers from the Northeast and West to keep coming. Then net domestic migration dropped 93% from the peak. Now these builders are slashing prices and giving 10% to 12% of the purchase price as incentives. If you are a buyer, you can negotiate like crazy with the builders. I have seen deals with $100,000 to $120,000 off new builds. They might not take it all off the price, but they will buy down your mortgage rate to make the numbers work and add other perks. I have seen cars and golf carts thrown in. So new homes compete against existing homes, and existing homes compete against each other and against builders with economies of scale. A lot of buyers are opting for new construction. They may have zero lot lines, but no maintenance or upgrades because it is brand new. Unfortunately, a lot of it was built fast and poorly, so there can be work to do afterward, but that is part of owning real estate either way.

I would love to hear from you if you or someone you know bought new construction recently and now feels trapped. Many who bought new in 2022 to 2025 are competing against the builder in the same community, who is offering all these incentives. They do not have a chance of selling, and their price is already down about $100,000. Some will probably hand the keys back to the bank, which I think is the next phase.

New builds are slowing down too. You saw the purchase application chart dropping rapidly. Only 24% of new builds sell within 90 days, while other homes close at nearly 44%, compared with fully gutted and renovated homes and everything else. You can see new builds stacking up on the market. You can drive through entire communities with tons of lots available and unfinished construction, and some built-out communities in Florida are basically ghost towns. Usually the builder tries to sell those to an institutional investor to get its cash back, the homes become rentals, and rents go down. It is no surprise if you spend a minute driving around and calling people. When you walk into those sales offices, they tell you, "We've sold so much." But they are giving massive incentives to convince buyers to move in. If you have to give that much to get someone to buy, you are basically paying them to buy an overpriced house with a lower mortgage rate.

Payrolls rose 165,000, but homebuilding jobs fell. There is a narrative that we had a massive housing shortage, which I think is a gigantic myth used to get you to buy an overpriced house. If there were such a shortage, builders would want to build as many homes as possible to keep up with demand. We never had a housing shortage. We had a demand shock followed by a pricing mismatch, where builders built at price points the average consumer can no longer afford. Building jobs have been falling, and some builders here tell me they are struggling to find enough workers to finish projects. I don't know if you are seeing the same thing in your city.

Construction spending fell the most since 2020. This is the newest data from the Census Bureau: it dropped 1.9%, and residential building is down 5.5%, the worst drop since April 2020. Expect this to continue, because why keep building homes if the demand is not there?

Some cities are doing better than others. Jacksonville is one of the worst: one in five Jacksonville home deals fell apart, versus one in seven nationwide in September. People are canceling contracts, sharpening their pencils and realizing the numbers never really made sense. Jacksonville cancellations hit 19.9%, the highest of any big metro in the country, and we feel it locally. Buyers had cold feet before the election last week, and they still have cold feet after it. The economy is shaky, and people do not feel as well off as they thought. They even talked about it on the All-In podcast the other day, and we have been saying it for a while: the middle class is getting squeezed, and that is a horrible situation for housing. A healthy housing market needs high wages, a large and growing middle class, people moving in, and steady jobs that last. A lot of people feel they will be disrupted by AI and are cutting expenses. We are at the end of the economic cycle for real estate because it popped so much. More than 50% in a few years is unsustainable.

Some markets have a lot of inventory and some do not. Jacksonville and Miami have fewer homes for sale in this chart, while others have a tremendous amount more year over year. Buffalo, New York is starting to move up, and so is Raleigh, North Carolina. This does not show the whole picture, because many builders list only one or two models on the MLS, so there is more inventory than appears here. Even in Washington, D.C., a bubble market, inventory is starting to climb, so be careful.

The boom markets are busting first. Florida and Texas cooled, but it is not just them anymore. South Carolina, Colorado, California and even Washington state are getting hit, and I think the red will spread over the next few months into next year. I think this year might end negative on home prices, and next year it is very possible we go negative again, depending on mortgage rates. If rates stay here or go higher, next year will be tough.

As I mentioned, renters are leading a spike in late loan payments. Americans are stretched like never before, and renters lead the share of households 60 or more days late on a loan payment in the last year. I expect it to keep rising. Interest rates in general, not just mortgage rates, have gone up, and people are struggling to manage their balances. I think this is a huge debt balloon, and if we do not get government debt under control it will spill over into consumer markets, where consumers are already maxed out. That is part of why I think we are at the end of the cycle for real estate. It is not just about real estate. It is about all the debt the consumer carries. How do you buy a new house if more than 50% of your income already goes to other payments?

Another interesting stat: one in four homes for sale had a kitchen or bathroom redo. This comes from Parcl. To sell today and compete, you need the right updates. Most homes are getting stuck while the top 10% still sell like hotcakes. That is generally true, but it accelerates in a slowdown. If your house is not pristine with the right renovations, it will sit, or you will get lowball offers, because the next buyer needs cash to do the work. It is a wake-up call for sellers. Figure out what buyers want, talk to your agent and local designers, and prep the house before listing: clean, natural light, all of it. I used to be a top real estate agent, and I can tell you that you can spend $10,000 and make $50,000 with the right upgrades, especially in a hyper-competitive market.

Lumber has fallen to its lowest price in two years, because new construction, permits and the inventory coming to market are slowing. The bulls say builders are not building as much anymore, but we have not even gone through the pain phase. We are still in phase one of this correction. Lumber at a two-year low is great, and builder material costs are easing. Hopefully builders pass the savings on to buyers. Generally I do not see that happen, but hopefully they have to respond by cutting prices.

One of the biggest stories right now is multifamily delinquency hitting 8.1%, according to Trepp, almost the highest level since 2016. I expect a big shock in multifamily and other commercial real estate. We are already seeing funds blow up and issue capital calls. Rents are falling while mortgage rates rise, and people did not underwrite a downside scenario. Sadly, the people who raised the money still get paid to manage these deals while running them into the ground without a contingency plan.

Take a chance to look up your county for free at movewithmomentum.com on the mapping feature. We are building the best data in the country, not just for Florida and Georgia, so you can make an informed housing decision. Read the disclosures on where the data comes from. The service is free for now, though it probably will not be free forever. Thanks for watching. If you liked what you saw today, drop a comment and subscribe. I come on every Wednesday with an update on the market. Thanks for following, and I will see you next week.