The housing market is fragmenting as inflation outpaces price growth

The housing market is filled with landmines, keeping homebuyers on their toes, hoping they’ll luck into the right listing at the right price and, if the real estate gods are particularly merciful, during a week when mortgage rates have dropped enough to increase their purchasing power.

The S&P CoreLogic Case-Shiller Index and the Federal Housing Finance Agency (FHFA) Home Price Index. were both released Tuesday, highlighting the market’s struggle to regulate amid multiple headwinds:

• The December Case-Shiller Index showed house prices up 1.3 percent year on yearlower than that of November Annual growth of 1.4 percent.
• Only house prices up 1.3 percent year on year for the full year 2025 – the slowest increase since 2011, when prices fell by 3.9 percent. This year’s performance is below the ten-year average of 6.6 percent growth.
• Real house price returns were negative in the second half of the year Annual inflation exceeded house price growth by 2.7 percent.
• The FHFA’s HPI was slightly rosier, thanks to US home prices in the fourth quarter increasing by 1.8 percent year on year.
• On a month-to-month basis, however, the FHFA said home prices could barely squeeze out any gains – only an increase of 0.1 percent from November to December.
• Forty-one of the 50 states saw home prices rise in the fourth quarter, while North Dakota (+6.4 percent), Delaware (+6.3 percent), Illinois (+6.1 percent), Wisconsin (+5.7 percent) and Michigan (+5.5 percent) in front.

Realtor.com Senior Economist Anthony Smith commented on Case-Shiller’s results, saying the price trends “represent a marked decline from the post-pandemic pace” and “underscore how affordability constraints and historically low sales weighed on housing market momentum throughout the year.”

“Recent housing activity underlines that stabilization is occurring from a low base rather than signaling a broad-based recovery. Existing home sales in 2025 totaled just 4.063 million, the lowest annual level since 1995, reflecting continued interest rate lock-in,” he said in an email to Inman. “At the same time, national inventories have more than doubled since the start of 2022, yet price levels have remained resilient. Longer days on market and higher delistings, rather than widespread price capitulation, explain much of this resilience.”

“Sellers in many cases appear more willing to withdraw offers rather than substantially adjust price expectations, preventing supply from exerting stronger downward pressure,” he added.

Homebuyers are also retreating in record numbers 40,000 cancellations of residential purchase agreements in January, Redfin said Tuesday. That’s equal to 13.7 percent of the homes went under contract that month, the highest share in January since Redfin started tracking the metric in 2017.

Cancellations were highest in buyer-leaning markets such as San Antonio (21.2 percent), Atlanta (18.5 percent), and Cleveland (17.9 percent). Riverside, California (17.5 percent), and Orlando, Florida (17.3 percent).

“Sales are falling faster than in the past, largely because it is a buyer’s market, with hundreds of thousands more U.S. home sellers than buyers,” the report said. “That gives buyers negotiating power; they can withdraw during the viewing period if they see a home they like better or if an inspection problem arises.”

“Another key reason buyers are pulling out of deals is financial uncertainty,” it added. “While home costs have fallen from their peaks, they are still near historic highs. Some potential buyers are canceling purchases as they become nervous about buying a home while worrying about issues like layoffs, tariffs and geopolitical tensions.”

Email Marian McPherson