While the U.S. real estate market has seen remarkable gains over the past decade, there are increasing signs that a market correction—or even a broader decline—may be on the horizon. Several key factors are contributing to growing uncertainty, and together they suggest that real estate may not continue its steady upward trajectory. Here’s a closer look at why the U.S. housing market could decline in the coming months or years.
- Persistently High Interest Rates
The Federal Reserve’s efforts to curb inflation by maintaining high interest rates have led to the most expensive mortgage environment in over 20 years. As of mid-2025, 30-year fixed mortgage rates hover around 7%, significantly higher than the sub-4% rates many buyers enjoyed during the pandemic. These elevated rates have made monthly payments unaffordable for many potential homeowners, reducing buyer demand and pricing out first-time buyers. As demand falls, so too may home prices.
- Affordability Crisis
Home prices have surged more than 40% nationwide since 2020, but wages have not kept pace. According to a 2025 report by ATTOM Data Solutions, more than 90% of U.S. counties are now considered unaffordable for the average wage earner. This affordability gap is unsustainable. If buyers cannot afford homes—even with dual incomes—the market naturally corrects through price reductions.
- Increase in Inventory
During the pandemic, housing inventory was historically low, which helped push prices up. That trend is reversing. More homeowners are listing properties, particularly those who bought second homes or investment properties when interest rates were low. Additionally, a wave of new construction projects started during the housing boom is now reaching completion, adding further inventory. As supply increases and demand wanes, downward pressure on prices is likely.
- Distressed Sales and Foreclosures on the Rise
Although foreclosures are still below pre-2008 levels, there has been a steady increase since the end of pandemic-era forbearance programs. Borrowers who bought at peak prices and are now facing higher monthly payments (due to adjustable-rate mortgages or loss of income) may be forced to sell—or worse, face foreclosure. A rise in distressed properties can drag down overall market prices.
- Investor Pullback
Institutional investors, such as hedge funds and private equity firms, played a large role in recent home price increases, especially in Sunbelt states. But many of these investors are now pausing acquisitions or liquidating assets in response to high borrowing costs and softer rental demand. Without these large-scale buyers supporting the market, prices may slide further.
- Economic Uncertainty
While inflation is slowing, recession fears persist. Consumer debt is at record highs, and the job market—particularly in sectors like tech, finance, and retail—is showing signs of strain. If job losses increase or consumer sentiment worsens, homebuyer confidence will fall as well.
Conclusion
The U.S. real estate market is facing multiple headwinds: high mortgage rates, poor affordability, rising inventory, and economic uncertainty. While housing markets are local and may vary in performance, the national trend points to a potential decline. Homeowners and investors alike should prepare for a market that looks very different from the red-hot seller’s market of recent years.