Home prices take 1st drop in 26 months, by this math

For the first time in more than two years, the U.S. housing market is showing a headline‑breaking decline. According to the Federal Housing Finance Agency (FHFA), the nationally weighted Home Price Index slipped 0.4 % in March 2025, the first month‑over‑month drop since early 2023. The data, released on May 28, 2025, suggests that the momentum that kept home prices rising for 26 consecutive months has finally stuttered—if not stalled.

What the Numbers Tell Us

The FHFA’s index, which tracks price changes for homes that are financed through mortgage loans backed by the Federal Housing Administration (FHA) and the U.S. Department of Housing and Urban Development (HUD), fell from 100.6 to 100.4 in March. While a 0.4 % dip may appear modest, it is the first month‑over‑month contraction since September 2023. The trend is echoed in other metrics: the S&P/Case-Shiller Home Price Index, which tracks 20 major U.S. metropolitan markets, reported a 0.3 % drop for the same period.

Key excerpts from the FHFA report highlight that the decline is driven primarily by a modest uptick in mortgage interest rates and a tightening in the supply of new construction units. The agency notes that “home prices have been largely buoyed by strong demand and a limited supply of homes for sale, but the current environment—characterized by higher rates and a slowdown in new‑home deliveries—has begun to create pricing pressure.”

Why the Drop Matters

Affordability Gains for Buyers
A slight decline in prices can translate into more affordable home purchases for first‑time buyers. In markets where the median home price has hovered above the national average, even a marginal dip may relieve some of the burden on potential owners. Real‑estate brokerage firms report that a 0.4 % price drop equals a savings of approximately $1,500 on a $375,000 home—a figure that can make the difference between staying in a rental or making the leap to ownership.
Impact on Mortgage Rates
Mortgage rates are a central driver of housing demand. The recent decline in rates from a 6.5 % peak back to 6.1 % (as of the last week of March) has coincided with the drop in prices. The Federal Reserve’s current policy stance, which maintains a 5.25 % target range for the federal funds rate, keeps the overall lending environment relatively tight. Analysts from the Federal Reserve Bank of St. Louis caution that further rate hikes could deepen the price decline, especially in price‑sensitive markets such as the Southeast and Southwest.
Regional Variations
The FHFA report indicates that the price drop is not uniform across the country. The Pacific Northwest and parts of the Midwest saw the largest declines—up to 1.2 %—while the South and West continued to see modest gains. The Zillow Research team notes that the Phoenix and Austin markets remain robust, with median prices still rising, suggesting that regional supply constraints and demographic trends continue to dominate.
Future Outlook
Economists from the Brookings Institution predict that the decline may signal a “cooling” of the housing bubble that has persisted since the 2010s. “If mortgage rates continue to rise and supply does not catch up, we may see a more sustained downward trend,” says Dr. Lillian Torres, senior housing economist at Brookings. Conversely, a rebound is also possible if the U.S. Treasury’s new stimulus package, slated for release in June, boosts home‑buyer confidence and injection of capital into the market.

The Methodology Behind the Math

The FHFA’s Home Price Index uses a weighted, repeat‑sales approach that captures the change in prices of homes that are resold or refinanced. Unlike the Case‑Shiller Index, which relies on a broader set of transaction data, the FHFA focuses on the subset of homes that receive FHA or HUD mortgage backing. The agency's methodology, detailed in its “Methodology Overview” guide, ensures consistency and allows for direct comparison to historic trends. Readers can download the full dataset from the FHFA’s DataTools portal [ here ].

The S&P/Case‑Shiller index, meanwhile, employs a repeat‑sales regression that tracks 20 metropolitan areas. Its methodology is available at the Standard & Poor’s website [ here ]. Both indices confirm the market’s gradual shift, though they differ in geographic scope and data sources.

Expert Take‑aways

Mortgage Broker Insight
John Miller, a mortgage broker in Dallas, Texas, says the price drop “could open a window for buyers who have been priced out of the market.” He notes that lenders are already adjusting underwriting standards to reflect the new price realities.
Construction Industry Perspective
Lisa Nguyen, CEO of a construction firm in Phoenix, warns that “even with falling prices, the supply side remains constrained. If we don’t see a surge in new builds, demand will still outstrip supply.”
Consumer Sentiment
The National Association of Realtors (NAR) reports that 62 % of surveyed consumers are optimistic about home prices stabilizing, whereas 28 % remain cautious. The NAR’s monthly housing report, released on May 27, provides a deeper dive into buyer sentiment [ here ].

How to Stay Informed

For real‑time updates on home prices, the FHFA publishes weekly releases [ here ]. Zillow’s research team offers weekly reports that include median price changes and inventory levels [ here ]. The Federal Reserve’s monetary policy announcements can be monitored via the Fed’s official site [ here ].

Bottom Line: The first drop in national home prices in more than two years marks a subtle but significant shift in the U.S. housing market. While the decline is small, it could herald a longer‑term trend toward more balanced prices, increased affordability, and a recalibration of the mortgage lending landscape. For buyers, sellers, and industry stakeholders alike, the next few months will be crucial in determining whether this dip is a blip or the beginning of a broader transformation.

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