- - Half of US Homes Have Lost Value This Year: Is the Market Cooling or Collapsing?

Martin DaskoDecember 21, 2025 at 7:04 AM

0

RoschetzkyIstockPhoto / iStock.com

According to recent research from Zillow, 53% of all American homes lost value over the past year, which is the highest figure since 2012. The data also showed that most homes have declined in value from their peak, with an average drop of 9.7%.

These figures can be intimidating, as a home is often the largest asset, and a steep decline could affect net worth or retirement plans.

While the price declines were common, the actual money lost was minimal because only 4.1% of homes are not as valuable as their last sale price, and the median homeowner has gained 67% in value since purchasing their place. This means homeowners have seen their property values increase significantly since purchasing. However, the report was concerning because it raised questions about the state of the housing market and potential developments in 2026.

Is the real estate market cooling or collapsing? Here’s a closer look at the current housing market and what experts forecast for 2026.

Home Price Growth Just Slowed Down

“Home price increases slowed sharply in 2025, with the average rise dropping to just 1.8%,” said Selma Hepp, the chief economist at Cotality. Hepp cited internal data and noted that Cotality forecasts that home prices will grow by about 3% in 2026, although regional growth is expected to range from 2% to 4%.

She emphasized that if inflation figures remain stubbornly high, the housing market will experience mostly flat real prices again in 2026, which could slightly improve affordability. The good news is that price growth has slowed, but there are no signs of a complete market collapse.

Read More: 20 Best Cities Where You Can Buy a House for Under $100K

Find Out: 6 Safe Accounts Proven To Grow Your Money Up To 13x Faster

Rapid Home Value Appreciation Has Finally Stopped

Home price growth during the pandemic wasn’t sustainable. Darren Tooley, senior loan officer at Cornerstone Financial Services, believes the data suggests the market is cooling and isn’t a signal of a collapse.

“What we’re seeing is a broad normalization after several years of unsustainably fast appreciation,” said Tooley. “Higher mortgage rates, record consumer debt, and softer demand in previously overheated markets are finally creating downward pressure on prices, particularly in areas that rose beyond market demand.”

The pandemic-driven housing growth was extremely rare, as low interest rates and shifts in consumer spending significantly affected the market. With higher interest rates and less inventory, the home value appreciation has slowed down, but there aren’t any signs of a collapse.

Just because home values aren’t increasing as quickly anymore doesn’t mean there are any concerns for the housing market. If anything, potential homebuyers may finally be able to enter the market after waiting on the sidelines for so long.

Housing Market Balance Is Being Restored

Tooley emphasized that a cooling market doesn’t mean a distressed market.

“Inventory remains historically tight, and if mortgage rates continue to drop, most cooling markets will likely heat up again,” he explained. “For most buyers and sellers, this environment simply brings the market closer to balance for the time being.”

This is consistent with a Zillow report released in the summer, stating that the housing shortage had reached an all-time high of 4.7 million units despite a construction surge. This means that limited inventory may drive housing prices up again when rates drop, and more buyers enter the market.

All we can do is continue to wait to see how the Fed responds with interest rate decisions in 2026, since this will impact affordability and consumer decisions.

Housing Market Changes Will Depend on the Region

Hepp noted that housing prices vary by region, as distinct challenges affect different areas. According to forecasts from Hepp and Cotality:

Home prices in the Northwest and Midwest are expected to rise 3% to 4% due to limited inventory and steady demand.

Prices may stabilize or decline slightly in the Sun Belt and Western regions, where pandemic-era surges are adjusting amid rising insurance costs, taxes, and homeowners association fees.

Coastal cities could see prices level off or fall because of higher insurance costs and difficulty securing coverage after natural disasters.

While prices may cool down in one region, another part of the country may see surges in 2026 as employees return to in-person work and those with lower rates start to list their properties.

Migration Patterns Have Cooled Down Certain Markets

Hepp said regional trends suggest a shift away from pandemic-driven migration, with fundamentals such as job growth, affordability, and lifestyle once again taking priority.

“The availability of for-sale inventory will impact home price forecasts, given that the Sun Belt and the West have seen larger jumps in home sales this year,” she said.

While the overall housing market cooled slightly in 2025, it’s not a collapse, as some regions continue to perform well. Hepp also pointed out that the Northeast continues to benefit from high-paying jobs and affordable adjacent metropolitan communities for hybrid workers.

More From GOBankingRates

Trump's $2K Dividend: Who Qualifies and How You'll Get It

Could Homer Simpson Support His Family in 2025?

How Middle-Class Earners Are Quietly Becoming Millionaires -- and How You Can, Too

5 Things You Must Do When Your Savings Reach $50,000

This article originally appeared on GOBankingRates.com: Half of US Homes Have Lost Value This Year: Is the Market Cooling or Collapsing?

Original Article on Source

Source: “AOL Money”