Is a correction in home values on the way?
Another housing report has shown a decrease in the forward progression of home prices, with the S&P CoreLogic Case-Shiller indicating a 3.4% annual increase in March – down from 4% in February – largely due to higher housing inventory.
The company’s 10-City Composite, which aggregates price growth in major cities, came in at 4.8% for the month, slowing by 0.4% from February, as the 20-City Composite also fell.
Nicholas Godec, head of fixed income tradables & commodities at S&P Dow Jones Indices, noted a supply uptick as one of the primary reasons for the pricing slowdown.
“Home price growth continued to decelerate on an annual basis in March, even as the market
experienced its strongest monthly gains so far in 2025,” Godec said. “This divergence between slowing year-over-year appreciation and renewed spring momentum highlighted how the housing market shifted from mere resilience to a broader seasonal recovery.”
While he noted the increased inventory helping to slow price growth, he also recognized the continued affordability issues caused by market volatility and tariff concerns.
“Limited supply and steady demand drove prices higher across most metropolitan areas, despite affordability challenges remaining firmly in place,” Godec said. “Looking at the market environment, affordability remained severely constrained, though it did not worsen materially in early 2025 as borrowing costs stabilized. Mortgage rates hovered in the mid-6% range throughout March, keeping monthly payment burdens near multi-decade highs relative to incomes.”
Market correction in progress?
There are signs that not only are home prices slowing their increase, but they may also be decreasing in some areas. Redfin reported last week that national home prices fell by 0.1% in April, the first monthly decline since September 2022.
Redfin CEO Glenn Kelman told CNBC that there might be early signs of a market correction in house prices.
“There has been a real shift,” Kelman said. “Homebuyers over the past few years have shaken off rate increases. Home prices kept rising. We anticipate prices will fall at least 1% in the second half of 2025. When you compare that to 4% wage growth, it means that finally homebuyers may be in position to catch a break.”
Kelman said that would be a welcome change in the homebuying environment for the first part of 2025.
“It has been very hard to put deals together over the past few months,” he said. “That is because sellers still have higher expectations from previous years. Buyers are now standing back. Some of that is macroeconomic anxiety. One in four Americans right now are saying they’re cancelling or deferring plans to buy a car or a house because they’re so worried about the economy.
“We are seeing, finally, evidence of a real correction, where prices are going to come down.”
Price changes vary by region
According to the S&P CoreLogic Case-Shiller report, the highest increases were in New York, with an 8.0% year-over-year surge. Chicago saw the second highest increase year over year, at 6.5%, followed by Cleveland at 5.9%.
On the other end of the spectrum, Tampa saw a decrease of 2.2% year over year. Dallas had the lowest annual increase at just 0.19%.
Godec noted that many homeowners still hesitate to give up record-low mortgage rates, but some are moving into the market.
Stacey Melton of Reasy Financial cautions potential homebuyers against expecting a significant drop in home prices or interest rates. She highlights the current mortgage market's stability compared to 2008.https://t.co/P08RTpSWcY
— Mortgage Professional America Magazine (@MPAMagazineUS) May 22, 2025
“Persistent supply shortages helped counteract the headwinds,” he said. “Many existing homeowners remained reluctant to sell and give up low pandemic-era mortgage rates, and new construction activity stayed limited – a combination that kept inventory levels extremely tight. The scarcity of homes for sale offset softer demand and helped support home prices, enabling a broad seasonal uptick despite the challenging affordability backdrop.”
Odeta Kushi, deputy chief economist at First American, agreed with Kelman’s assessment that buyers are in a stronger position now, thanks to increased inventory.
“This divergence matters because affordability is shaped by home prices, mortgage rates, and incomes,” Kushi told Mortgage Professional America. “With mortgage rates still elevated and flattening, or even falling, prices in some markets, home buyers may find themselves in a stronger negotiating position than just a few months ago.”
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