Are Home Values About to Fall? It Depends on the Location

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Are Home Values About to Fall? It Depends on the Location

The supply of houses for sale is recovering much faster in some parts of the country than in others

By Carol Ryan, WSJ

March 3, 2025 5:30 am ET

Stark regional differences are opening up in the housing market. Buyers have the power to demand big price cuts in some parts of the country, but still face bidding wars in others.

The national supply of homes for sale hasn’t returned to normal yet. In January, U.S. existing-home inventories were 16% below levels seen this time five years ago, according to the National Association of Realtors. Homeowners with ultralow mortgage rates have been reluctant to sell and lose their cheap borrowing costs. But this lock-in effect is slowly loosening as more people decide they can’t delay moving any longer, so supply is increasing.

Beneath the headline numbers, different states are recovering at sharply different paces. Inventory has shot above 2019 levels in a handful of areas. In Texas, the number of properties for sale is 20% higher than it was before the pandemic, data from Realtor.com shows. Florida and Colorado are also above 2019 levels.

At the other end of the spectrum, supply is crunched in parts of the Northeast and Midwest. In 15 states including New Jersey and Pennsylvania, the number of homes currently on the market is still less than half what was normal before the pandemic.

Several things are causing a two-speed housing market. One is a glut of newly built homes. Last December, builders had 118,000 ready-to-occupy single-family homes sitting unsold, according to the National Association of Home Builders—the highest level since August 2009.

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Based on permitting applications, most new construction has happened in the South, particularly in Florida and Texas. Florida expanded its housing stock by 15% since 2020, according to estimates by Brad O’Connor, chief economist at Florida Realtors. These newly built homes are hitting the market at a time when demand from buyers is exceptionally weak because mortgage rates remain high. As properties sit unsold, inventories are creeping up.

Meanwhile, in states like Illinois, strict zoning laws and expensive building costs have hampered new construction. And the inventory of existing homes for sale is gummed up. Jeff Baker, chief executive officer of Illinois Realtors, says that although many homeowners in the state want to move, there is so little supply and prices are so inflated that people have little choice but to stay put.

The lock-in effect of cheap mortgages is also slightly weaker in some regions than in others, which is influencing how fast homes are hitting the market. In the South, 21% of outstanding mortgages on average had a rate of 6% or higher at the third quarter of last year compared with 18% in the Northeast, based on an analysis by Chris Porter, a senior vice president at John Burns Research and Consulting. This is largely because more homes have sold in the South since interest rates rose, because of continued migration to the region.

Homeowners in the South are also slightly more likely to own their property outright than the national average, based on 2023 estimates from the U.S. Census Bureau. As mortgage-free owners often don’t need to take out an expensive new home loan when they move, they have greater flexibility to sell.

Another reason why inventories are rising fast in certain states is that properties look overvalued, so buyers aren’t biting. Thanks to a migration boom during the pandemic, property prices in some Sunbelt states rose faster than in other parts of the country. In Florida, the value of the median home increased 64% over the past five years according to Redfin, compared with 42% and 17% gains in Illinois and New York respectively.

These red-hot prices, coupled with rising insurance costs, have put valuations out of whack with local wages. The average all-in cost of homeownership in a selection of major Florida metros is now equivalent to 44% of local incomes, according to the John Burns Affordability Index. This is up from 28% in 2019. As migration to Florida has slowed, there are fewer new high-wage earners to support home prices at their current levels.

The good news for house hunters is that affordability should improve in oversupplied states. Barring a decline in mortgage rates, home prices in markets like Texas are likely to fall. This isn’t the case in many parts of the Northeast and Midwest, where strangled supply should support property prices.

American homes look overvalued across the country, but supply is very uneven. The next phase of this strange housing market could see prices fall sharply in some areas, while continuing to rise in others.

Write to Carol Ryan at carol.ryan@wsj.com