It seems pretty clear that the housing market has cooled and now is more of a buyer’s market than a seller’s market.
While this does and will always vary from metro, it becomes increasingly common to see higher days in the market (judgment), price cuts and rising stock.
All this has to do with record -breaking affordable prices, which has made it difficult for a potential home buyer to make a deal pencil.
The stubbornly high mortgage rates also do not help with questions, nor are questioning whether it is a good time to buy a home. Or if it is better to just continue to rent.
But if you go through with a home purchase today, you can expect to keep the property for many years to come.
The winnings in the home price have cooled and could even go negatively this year
While economists for Corelogic still predict that house prices are rising 3.6% from January 2025 to January 2026, it seems that the winnings are quickly slower.
And in some markets, especially Florida and Texas, house prices have already become negative and have begun to fall years over years.
For example, housing prices turned off 3.9% in Fort Myers, FL, 1% in Fort Worth, TX and 1.1% in San Francisco.
I expect more markets to be negative as 2025 progresses, especially with more properties coming on the market and sitting on the market when judgment goes up.
It is a simple question of supply and demand, with fewer eligible (or interested) buyers and more properties to choose from.
There are many guilty, but it is mostly an affordable problem with the national relationship between payments and income that is still around GFC bubble heights, per. Ice.
This explains why home purchase applications are still quite flat despite some recent improvement in mortgage rates.
Sprinkle rising homeowners insurance and property taxes and everyday life costs and it will be much more difficult to buy a home today.
While it may be good news for a potential buyer who has a solid job and assets in the bank, it probably means renting is the only game in the city.
If this persists, I expect more downward pressure on house prices, although the mortgage rates can also fall into tandem.
Still, I would not expect any spectacular gains after a home purchase today in most scenarios.
Appreciation is expected to be pretty flat in most markets at best in the foreseeable future.
This means that the only way to make a buck is through regular main payments (one of four key components for Piti).
Your priority loan is paid slower when the rates are higher
| $ 400,000 loan amount | 2.75% priority rate | 6.75% priority rate |
| Monthly payment | $ 1,632.96 | $ 2,594.39 |
| Interest paid in 3 years | $ 31,938.47 | $ 79,698.01 |
| Principal in 3 years | $ 26,848.09 | $ 13,700.03 |
| Remaining balance | $ 373,151.91 | $ 386,299.97 |
The problem is mortgage rates today are closer to 6.75%. On a loan amount of $ 400,000, this means that only $ 345 of the first payment goes against the principal.
The remaining $ 2,250 is going toward interest. Yes, you read it right!
As a result, your mortgage loan is much slower today if you take a home loan at the applicable rates.
Contrast this to the people who took 2-3% mortgage rates that have less loan amounts and much faster repayment of the principal.
At the same $ 400,000 loan amount of 2.75%, $ 716 goes against the principal and only $ 917 goes against interest.
The effect is that these homeowners get equity much faster, creating a wider buffer between what they owe and what their home is worth.
To return to our borrower of 6.75% priority rate, they still owe $ 386,000 after three years of ownership.
A low down payment makes it harder to sell your home
Now let’s pretend that the owner of 6.75% priority rate only put 3% down on their home purchases.
This is the minimum of Fannie Mae and Freddie Mac, the most common type of priority loan (consisting of loans) out there.
The purchase price would be approx. $ 412,000 in this scenario, which means only $ 12,000 payout.
It’s great that the payment is low, I assume, but it also means you have very little equity.
And as shown, you pay very little down in the first 36 months of home ownership.
In three years the balance would fall to just over $ 386,000, which is a pillow of approx. $ 26,000.
In normal times, we could expect house prices to rise about 4.5% annually and set the value of the home of $ 470,000.
This would give our hypothetical homeowner about $ 84,000 in home equity, between appreciation and main salary.
It works for approx. $ 58,000 in appreciation, $ 14,000 in principal and $ 12,000 down.
Now let’s assume you want to sell because you don’t like the house for some reason, or need another, or simply can’t afford it anymore.
There are plenty of transaction cost involved in selling a home
| $ 412,000 home purchases | 1% wins annually | 4.5% gain annually |
| Value after 3 years | 424,500 $ | $ 470,000 |
| Balance after 3 years | $ 386,000 | $ 386,000 |
| Home sales costs | $ 42,500 | $ 47,000 |
| Sales proceeds | -$ 4,000 | $ 37,000 |
It is not free to sell a home. It comes with a lot of transaction costs, whether it is transfer fees, escrow fees, title insurance, real estate commissions, relocation of expenses and so on.
While these fees vary by location, one can expect to share with 10% of the sale price in the total closure costs.
So let’s pretend that home is able to sell for $ 470,000 after three years. The cost of selling is approx. $ 47,000.
This means that the effective selling price is a lower $ 423,000. You go away with $ 37,000 in your pocket, the difference between it and $ 386,000 loan balance.
Remember that you also parted by $ 12,000 to buy the place so your “profit” is $ 25,000. Even less when you consider that you just paid back your loan.
Now imagine that the home does not value in value with it 4.5% a year, and appreciate instead of saying 1% a year.
It is only worth $ 424,500 after three years and you will sell it. The same 10% in sales costs apply, which lowers the proceeds to $ 382,050.
But you owe $ 386,000 on the mortgage loan. Even if you did not have an underwater mortgage loan where the balance exceeds the home value, once the sales costs are incorporated, it is negative.
You will have to bring money to the table to sell the property.
For this reason, think of a longer time horizon when buying a property today.
This is not to say that house prices do not rise over the next three years, but you can see how easily a scenario like this could unfold.
In recent years, house prices rose with double digits each year with cumulative gains of 50% in just three or four years in some cases.
At the same time, these homeowners paid their priority balances much faster thanks to a mortgage loan of 2-3%.
This made it much, much easier and faster to quickly turn and sell if they wanted to. Or mat.
Now you will probably have to keep a property for many years if you want to sell for a profit. Then make the decision with care.
Before creating this site, I worked as a banking director of a wholesale loan in Los Angeles. My practical experience in the early 2000s inspired me to start writing about mortgage loans 19 years ago to help potential (and existing) home buyers better navigate the home loan process. Follow me on x for hot take.
