When it comes to residential real estate, the old adage of “location, location, location” still rules the day in most economic cycles, but some air has definitely been coming out of the hottest markets for the past three years. The post-pandemic economy has made United States housing far less affordable, driven by a mix of surging home prices during 2020-2022, elevated mortgage rates since 2022 and chronic supply shortages. The result is a market where affordability is at multi‑decade lows, inventory remains tight and regional disparities have widened.
Those that bought into the red-hot Austin, Texas market are down -6.7% year over year, with homes taking around 71 days to go pending, according to Zillow (October 2025). Tampa home prices have declined notably over the past year as well. Depending on the source, Zillow reports a -5.1% drop, while Redfin shows a much steeper -13.8% decline, with home sales taking between 41 to 58 days to go pending.
And this is just over the past year. Most home prices peaked in 2022 amid the pandemic boom. Austin home prices are down an average of -24% since 2022, New Orleans prices are down -19%, San Francisco is down -15%, Manhattan, NY is down -16%, Washington, D.C. is down -13% and Denver is down -11%. So, while the stock market has rallied to new all-time highs, brick and mortar residential investments have sorely lagged.
But the runup leading into the correction was ridiculous. Austin is the poster child of the correction. Home values surged 60%+ during 2020-2022 before the -24% pullback. The largest home price declines are concentrated in pandemic boomtowns (Austin, Bay Area, Florida coasts) where affordability collapsed and migration slowed.
Home prices surged by 20-40% in many metros between 2020-2022 as stimulus, remote work and migration fueled demand. According to Amherst Group CEO Sean Dobson, pandemic economic interventions “made housing unaffordable for a whole generation of Americans”. Rates jumped to 20‑year highs in 2022 and remain elevated. Goldman Sachs notes the average monthly mortgage payment rose from <20% of income pre‑pandemic to >30% since 2022, a historic high.
Currently, U.S. housing is short 3-4 million homes beyond normal construction needs. And yet, other cities have continued to see home prices increase due to certain economic hubs and population growth. Charlotte has seen average prices rise by +3%. Northern Virginia up 4.9% year over year. Syracuse, New York is up +18%, Montgomery, Alabama is up +16% and Long Island, NY is up 12%.
The bottom line is that the post‑pandemic economy transformed housing into a bifurcated market where affordable regions are rising, overheated boomtowns are correcting and nationwide affordability is at historic lows due to high mortgage rates and supply shortages. Maybe this is why wherever you look, there are apartments under construction like bee hives. The post‑pandemic housing squeeze is fueling a bull market in full‑featured apartments. Developers are leaning into amenity‑rich, mixed‑use and “lifestyle” rental communities because affordability pressures have shifted demand away from single‑family ownership and toward high‑quality rentals.
In order to restore affordability to around 20% of income, one or a combination of things need to happen. Home prices must fall by 45% nationally to average $240,000, or mortgage rates must drop to 3%, which is unlikely anytime soon, or household incomes must rise by about 50%, which is structurally impossible. There are regional nuances at work. Syracuse, Cleveland and Montgomery are already close to affordability, while boomtowns Austin, Tampa and the Bay Area remain far above the 20% threshold.
When looking at the real estate market as an index, the folks at Standard & Poor’s have no interest in single family REITS or apartment REITS as top holdings. Those charts show the top names trading near five-year lows. The Real Estate Select Sector SPDR Fund (XLRE) shows a pattern of lateral performance, save for the April flush, and is dominated by properties that operate in assisted living, e-commerce logistics, data centers, cell towers, self-storage, property services and mixed-use shopping centers.
Of the 31 stocks that make up the total holdings within XLRE, 11.13% are residential rental properties (homes and apartments) and there is only 1.08% exposure to commercial office properties. Like the stock market itself, the real estate sector has narrow leadership, with the top 10 holdings occupying 58.38% of total assets.
Below is a chart of the total commercial real estate market that shows some elements of recovery thanks to the back-to-office trends that are taking place, but there are clearly structural economic changes that have occurred with AI being the latest to threaten to empty offices and other commercial spaces.
But most of all, the dream of owning a home by first-time home buyers remains highly elusive in desirable communities where good jobs exist. Until the chart below, which shows the price trend of the U.S. National Home Price Index, starts trending lower, the rate of inflation will be hard to see levels below 3%.
If “drill baby drill” contributed to lower gas prices, then the next cry out for the consumer should be “build baby build.” U.S. housing is short 3 to 4 million homes beyond normal construction needs. Restrictive land use regulations and slow construction have kept vacancy rates at record lows. We need more supply of affordable new homes so household creation and have a shot at home ownership and still pay the bills.
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