Falling home prices are raising the risk of a deeper correction as the housing market cracks under high mortgage rates
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The latest Case-Shiller home price report showed a 0.3% monthly fall in the 20-city index in April, steeper than March's downwardly revised 0.2% dip.
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real estate
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June 28, 2025
07:45 PM
Fortune
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Finance·HousingFalling prices are raising the risk of a deeper correction as the housing market cracks under high mortgage ratesBY Jason MaBY Jason MaWeekend EditorJason MaWeekend EditorJason Ma is the weekend editor at Fortune, where he covers, the economy, finance, and housing
SEE FULL BIOA for sale sign sits in front of a in Miami on May 12
Joe Raedle—Getty ImagesRecent housing market indicators show persistent weakness in prices, including consecutive month-over-month declines
That’s as housing supply has increased while demand has stayed tepid amid still-high mortgage rates hovering around 7%
The slump in prices raises the risk of a longed downturn, according to Capital Economics
The housing market has largely been frozen since mortgage rates shot up a few years ago, but recent indicators have pointed to the possibility of an ext slump in prices
The Case-Shiller price report showed a 0. 3% monthly fall in the 20-city index in April, steeper than March’s downwardly revised 0
In a note on Tuesday, Thomas Ryan, North America economist at Capital Economics, warned that the back-to-back declines could signal a “deeper correction” ahead. “After falling in March, the further 0. 3% m/m decline in house prices in April raises the risk that prices are entering a sustained downturn, as the market finally buckles under the weight of near-7% mortgage rates,” he added
On a three-month annualized basis, house prices fell by 0. 4%, Ryan noted
And while prices are up on a year-over-year basis, it’s still the slowest pace since August 2023 The Case-Shiller data isn’t the only red flag, as the FHFA price index showed a 0. 4% monthly drop. “ly, the existing s market is losing momentum as demand remains anemic due to sky-high borrowing costs, while more people put their up for sale, forcing sellers to adjust their price expectations,” Ryan wrote
Previous data also line up with a downtrend
The median sale price of an existing has dropped for five consecutive months on a seasonally adjusted basis
That’s as the number of s available for sale is back around pre-pandemic levels
To be sure, lower prices also make s more attractive, potentially spurring more demand and representing some relief for younger Americans who are looking to buy but have been priced out of the market
But economists at Citi Re flagged headwinds, attributing the price declines to high mortgage rates, elevated uncertainty, softening consumer demand, and a weakening labor market
In addition, slowing activity in the housing sector overall is an early sign that underlying demand is weakening this year, Citi said in recent note. “While prices could still fluctuate month-to-month, consistent softening in median sale prices suggests the trend is ly to continue in more stable measures of new prices the Case Shiller index,” economists predicted
Capital Economics said there are still some reasons to believe a longed downturn can be avoided
Ryan pointed out at that supply remains relatively tight overall, despite some expansion lately
Meanwhile, the mortgage market is also healthy, reinforced by more than a decade of stricter lending standards instituted after the Great Financial Crash
Plus, continued resilience in the labor market should prevent forced selling in the housing market, he added. “All that being said, the weakness of the recent price data mean that we have to start taking the spect of an ext period of house price declines more seriously, which is something we will be considering for our upcoming US Housing Outlook,” Ryan said
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