Home price growth slows as high costs and economic concerns impact buyers

[UNITED STATES] The real estate market has been undergoing significant changes, with home price growth experiencing a noticeable slowdown. However, despite this deceleration, many prospective buyers are finding themselves hesitant to make a purchase. Factors such as persistently high home prices, rising interest rates, and broader economic uncertainties are making it difficult for many to take the plunge into homeownership.

The Slowdown in Home Price Growth

For several years, the housing market saw robust price increases, driven by a combination of factors, including low interest rates, high demand, and a shortage of housing supply. But according to the latest data, home price growth has begun to lose momentum. For the first time in a while, there is a shift toward stabilization, though prices remain high by historical standards.

According to data from CoreLogic, home prices saw a slight dip in 2024, with only a modest uptick expected for 2025. The National Association of Realtors (NAR) has similarly reported a leveling off of home prices, as more buyers pull back due to affordability concerns. While some markets are still experiencing price growth, others have cooled down significantly, leading many to wonder whether the housing market will see a full reversal or simply a period of stagnation.

The Impact of High Costs

Despite the slowdown in price growth, the costs of homeownership remain high. One of the primary reasons for this is the significant rise in mortgage rates, which have more than doubled over the last few years. As the Federal Reserve continues to fight inflation by raising interest rates, borrowing has become increasingly expensive for homebuyers.

"Mortgage rates are the highest we've seen in over 20 years, and that has made a huge impact on what buyers can afford," says Rachel Hyman, a real estate analyst. "Even though home prices may be leveling off, the cost of borrowing is pushing many potential buyers out of the market, particularly first-time buyers."

This combination of high home prices and expensive mortgage rates is creating a double whammy for homebuyers. According to recent reports, the average monthly mortgage payment has increased by nearly 50% over the past year alone. This is forcing many buyers to reconsider their plans, especially when they factor in the potential for rising costs in other aspects of life, like gas, food, and healthcare.

Economic Uncertainties Worsen Buyer Caution

Alongside high costs, economic uncertainties are playing a major role in deterring potential homebuyers. Many Americans are concerned about the potential for a recession, especially as inflationary pressures continue to weigh on household budgets. For many, the prospect of taking on a large financial commitment like a mortgage feels less appealing in times of economic uncertainty.

"People are still worried about the economy. They're worried about layoffs, rising costs, and whether or not the job market will hold up," says Alan Westbrook, an economist. "When people are uncertain about their financial future, they're less likely to make big decisions like buying a home."

This hesitation is particularly noticeable among younger generations, many of whom are still recovering from the financial effects of the COVID-19 pandemic and facing high student debt burdens. Even those with the means to purchase a home may decide to wait until the economic outlook improves, as they worry about the long-term impact of such a significant investment.

The Retrenchment of Buyers

As a result of these economic pressures, many buyers are retreating from the market, or at the very least, slowing down their home search. A report from Redfin indicates that homebuyer demand fell sharply in late 2024, with fewer people attending open houses and submitting offers. This retreat has been especially pronounced in areas where prices remain stubbornly high, despite the broader slowdown in home price growth.

"Buyers are just not as active as they were a year ago," says Jennifer Lee, a local realtor in California. "It's not that they don't want to buy—it's that the costs are too high and the uncertainty makes them second-guess their decision."

Some potential buyers are opting to stay in rental properties for longer, with many expressing the desire to save more money before taking on the commitment of homeownership. In some areas, rental prices have also begun to cool down, making it slightly more attractive for renters to stay put.

A Competitive Market for Sellers

For sellers, the market has become more competitive, especially as buyer demand has weakened. Many homeowners who had planned to sell have pulled back, waiting for better conditions. This has led to a limited supply of homes, which has in turn kept prices from falling too sharply. However, while sellers may still command high prices, they too are feeling the pressure.

“Some sellers are reluctant to drop their prices, especially in areas where prices have been high for years,” says Linda Marquez, a real estate agent in Texas. “But it’s becoming clear that buyers are not willing to pay those prices anymore, and we’re seeing more price reductions than we did a year ago.”

This shift in the market could have lasting effects on both buyers and sellers. While home prices may not fall drastically, the slowdown in price growth and the high cost of borrowing are likely to keep the market in a state of flux for the foreseeable future.

The Shift Toward Flexibility and Affordability

Given the current economic climate, many buyers are seeking more affordable and flexible housing options. For example, more people are looking at smaller homes or homes in less expensive areas, where prices have not risen as quickly. Additionally, there has been an uptick in interest for adjustable-rate mortgages (ARMs), which offer lower initial interest rates, though they come with the risk of rising rates over time.

"I think we're going to see more people opting for ARMs in the coming months," says financial advisor Amanda Price. "While they carry some risk, they offer a way to enter the market with a lower monthly payment, which can be especially appealing when mortgage rates are so high."

Furthermore, some buyers are focusing on more energy-efficient homes or homes that require less maintenance, as they look for ways to save money over the long term. In some cases, homebuyers are also considering the option of buying fixer-uppers in order to get a better deal, even if it means putting in the effort to renovate.

The Outlook for the Housing Market in 2025

Looking ahead, the housing market is expected to remain in a period of uncertainty, with mixed signals emerging from both buyers and sellers. High costs and economic concerns will continue to shape buyer behavior, while the lack of affordable housing in many areas will keep the market competitive for the time being. However, as interest rates eventually stabilize and inflationary pressures ease, there could be an opportunity for some buyers to re-enter the market, especially if prices continue to level off.

Ultimately, homebuyers are likely to remain cautious for the time being, waiting for the right moment to make their move. As one economist recently noted, "The housing market is cooling off, but the fundamental issues of affordability and economic uncertainty are not going away anytime soon. Buyers will need to adapt to a new reality of higher costs and slower price growth."

The housing market is in a period of transition, with home price growth slowing down while high costs and economic uncertainty are causing many buyers to retreat. For prospective homeowners, the current landscape presents a series of challenges—especially the combination of high home prices, mortgage rates, and an uncertain economy. Until these issues are addressed, it’s likely that homebuyers will continue to be cautious, opting for more affordable or flexible options where possible.

While the future of the housing market remains unclear, one thing is certain: buyers are no longer willing to make hasty decisions in a volatile market. The next few years will likely see a recalibration, with the market adjusting to a new reality of higher costs and slower price growth.