Sellers Do What No One Expects

Dave:We have made it to the end of 2025, but the housing market continues to change and shift and confuse as it has all year. But today we are going to make sense of it. This is our December 2025 housing market update. Hey everyone. It’s Dave Meyer. I’m a housing market analyst and I’ve been a real estate investor for 15 years and I am the head of real estate investing here at BiggerPockets. And it’s hard to believe last housing market update of the year. It has been a truly wild year in the economy and the housing market. We started with one that was rapidly cooling. Rates were in the sevens. Things were feeling stalled out. Inventory was going up. And fast forward to today, although it might not feel like much has changed, a lot actually has changed. I see it in the data wherever I look.We are very much in a different situation heading into 2026 as we were in 2025. And honestly, I think there’s some good news here. There are good opportunities starting to emerge, but of course there are risks that need mitigating too. We’re going to get into all of that, both the risks and opportunities in today’s episode. First, we’re going to talk about home prices. Then we’ll talk about some good news. Finally, on housing affordability. We’ll get into a new trend that’s emerging with sellers and how they are trying to wrestle back control of the housing market. And we’ll end talking about underwater mortgages and this article that I keep seeing everywhere in the news these days. I will address head on if underwater mortgages is a potential risk to the market going into next year. That’s the plan for today. Let’s get into it. First up, major headlines here.What’s going on with prices? Everyone wants to know. Well, according to Redfin, prices are up 1.4% year over year. That’s still relatively good. We are not in any sort of crash. I would still call that a correction because prices are down in real terms. 1.4% is a little bit flattish to me, but not bad given where we started this year. Remember when rates were at 7.25, inventory was up 30% year over year. Everyone was saying that there was going to be a crash. I did not. Just for the record, I said we would be kind of flattish and I think that’s where we are. Just as a reminder though, just one year ago, appreciation rates were still at 5%, which doesn’t sound like much, but that’s well above the long-term average of 3.5%. It’s well above where we are today. So it is important to note that we’ve had significant cooling in appreciation rates over the last years, but we are not talking about declines, at least on a national level yet.That said, there are major regional differences going on. According to Zillow, 105 of the top 300 regional markets are in a decline right now. So basically a third of the biggest metro markets in the country are seeing housing prices go down. And that number, the total of markets that are seeing a decline has gone up a lot. If you look back to January, it was only 31 markets. And by June, it had more than tripled up to 110, but now it’s actually back down to 105. So this is treading water and staying flat, and that’s really important. Obviously, the markets that are in a correction, you’re going to have to take different tactics in those markets than the ones that are still doing right now. But I think the fact that the number of markets that are correcting is relatively even shows some stability to the housing market despite everything that’s going on.Now, the depths of those corrections are wildly different. If you look at Punta Gorda and Cape Coral, these are kind of the poster child for the Florida crash that’s going on right now. Punta Gorda down 13% year over year, that’s a lot. That’s a crash in that market. Cape Coral, down 10%. I think if you’re losing 10% a single year, you could call that a crash. I wouldn’t argue with you there. We even see all four actually of the top markets seeing declines, I guess you’d call those bottom markets, are all in Florida. Punta Gorda, Cape Coral, Northport/Sarasota, and then Naples. Those are the top four. After that, we see Kailua in Hawaii, Austin, and Texas. Then it’s back to Florida. Then we got Tampa, Sebastian, Vero Beach, Daytona, Port St. Lucie. So 12 of the biggest corrections in the country, 12 of the top 14 are all in Florida.So you can see that it’s highly concentrated there. The other trends are in the Gulf region. So Texas, Louisiana are also seeing some of the bigger corrections. And then they’re sprinkled throughout the countries as well. There’s definitely markets in California. You see some markets where I live in Washington and Denver. There’s definitely corrections too, but if you’re just looking for the trends, the Gulf region is where it’s mostly concentrated. On the other end of the spectrum, no surprise here, Midwest is still seeing some of the strongest appreciation rates, but those rates are coming down. So Chicago, you see Milwaukee, you see Cleveland, you see these markets are still up, but they’re now up like two or 3% instead of last year, six or 7%. So everything, appreciation rates are slowing down all across the country. So let’s move on to mortgage rates as this is going to be a very important barometer for next year.It also tells us a lot about what’s been going on this year. This has been a positive story. I know people are not happy with six and a quarter percent mortgages, but they should be because a year ago they were about 6.75. If we look at January, they peaked out at seven and a quarter. Now they’re at six and a quarter. A 1% drop in mortgage rates over the course of a year is good news. That is a positive thing for the housing market. This is one of the reasons why the market has shifted this year. Like I said, we started 2025. People were very worried about a crash because mortgage rates were 7.25, horrible affordability. Inventory is going up. Well, maybe it’s not the banner mortgages that we saw during COVID, but the fact that rates have gone down, one full percent matters. That brings millions of people into the housing market.That improves affordability for investors and for homeowners. And so that’s a really good thing. Where we go into next year, I’ve made my predictions about this. They will hopefully stay in the low sixes, maybe even get into the high fives. And there’s some encouraging signs about that, right? If the Fed keeps cutting rates, that could put more downward pressure if yields keep falling. The other good news, if you’re into this kind of thing is that the spread between treasury yields and mortgage rates is coming down, which is one of the things that has propped mortgage rates up. So I think there’s good momentum here that mortgage rates could keep coming down a little bit, but are probably not going to be coming down in any dramatic way, unless something dramatic happens in the economy. One thing I did want to call out for real estate investors, just a piece of advice is that refinancing is starting to get a little bit more attractive.I think when you go from seven and a quarter to six and three quarters, people aren’t really that interested. But when you lose a full percentage point, depending on the price of your house, that could be hundreds of dollars per month in cashflow that you could be generating or saving if it’s your primary residence by seeing rates come down this much. And I know people might say, “Oh, Dave, you said rates could come down a little bit more.” You could wait, but I just want to call out that just in this last year, there’s some data that came out from the mortgage monitor that comes out from ICE each month. They said that 3.1 million more mortgage holders are sort of in the money for refinancing over the last couple of year because they could reduce their rates by 75 basis points. I thought that was pretty interesting.I didn’t know that math before, but if you can cut your rate by three quarters of a percent, so 0.75%, that usually makes it worthwhile for most people. And so if you are holding onto mortgages right now that are in the sevens, if they got a seven in front of it, if they got an eight in front of it, because investors might have one with an eight in front of it, you may want to consider refinancing right now. You could wait a little bit, but things bounce up and down. It’s hard to know. I actually got a message on Instagram yesterday from a guy who said that I saved him $800 a month. I guess he has an expensive mortgage. I think he lives in LA. I saved him $800 a month because I told him to refinance before the rate cut because I said that mortgage rates were going to go back up and they did.And apparently that saved him a whole bunch of money. So I just want to point out that waiting doesn’t always work and considering refinancing might be worth it. I think it’s at least worth talking to a banker if you have a mortgage with a seven or eight in front of it, something to consider. So I think high level housing market stuff, this is relatively positive. We need affordability to improve. And so seeing relatively flat prices, in my opinion, is pretty good. I don’t want to see prices crash, but I don’t want to see them explode again. I want to see them stay stagnant. That’s really good. And mortgage rates have come down. They’re starting to come down a little bit more. I think that’s a great way to end the year in 2025 and bodes well for the beginning of 2026. We need to talk more about affordability though, because this is what everything in the housing market hinges on.And we’re going to talk more about new data on affordability right after this quick break. We’ll be right back. As a real estate investor, the last thing I want to do or have time for is play accountant, banker, and debt collector. But that’s what I was doing every weekend, flipping between a bunch of apps, bank statements, and receipts, trying to sort it all out by property and figure out who’s late on rent. Then I found Baselane and it takes all of that off my plate. It’s BiggerPockets official banking platform that automatically sorts my transactions, matches receipts, and collects rent for every property. My tax prep is done and my weekends are mine again. Plus, I’m saving a ton of money on banking fees and apps that I don’t need anymore. Get a $100 bonus when you sign up today at baselane.com/bp.Welcome back to the BiggerPockets Podcast. I’m Dave Meyer here giving our December housing market update for 2025. Before the break, we talked about flat home prices, declining mortgage rates. What those two things mean though, when you take those two things in aggregate, they give us what I think is the most encouraging sign that we have seen in the housing market for a year, maybe more, maybe three years. Home affordability has hit its best level in two and a half years. That’s as of September, last time we have data for this, but this is fantastic news for the housing market and it is driven by the two things that we talked about before the break. Rates are easing and prices are pulling back. Now, I know I said that prices are up 1.4%, but when it comes to affordability, what you need to measure is how do prices compare to inflation?And if they’re up 1.4% year over year, but inflation’s at 3%, they’ve actually gone down in inflation adjusted terms. And that means that it is more affordable for people, right? Their wages are going up relative to the price of a home that makes housing more affordable. If you combine that with falling mortgage rates, we are getting improved affordability. This is great news. This is something I think is worthy of celebrating. Now, it is not the best affordability we have ever seen. It is far from it. We just in the last year, we’re near 40 year lows. So we’re probably at 38 year lows for affordability. This is not like we should be celebrating because all of a sudden housing is affordable. We should be celebrating because you got to start somewhere. The trend was moving in the opposite direction for so long. Housing was getting less and less and less affordable.That’s not good. It’s got to bottom out and start moving in the right direction. And fortunately, I think that’s the direction we’re heading. So that is good, right? We are seeing that across the board. If prices stay flat orish, decline a little bit like I think they will next year, mortgage rates come down a little bit. That’s the affordability movement that we need. This is the whole premise of the great stall that I’ve been talking about for months or years now is that this is the most likely path for the housing market. And it does seem that it is true, at least as of now. So I think that’s a good thing. Just to build on this a little bit more, actually out of the hundred largest markets in the United States right now, 12 of them, primarily in the Midwest, have now returned to long run average for affordability.I know that doesn’t sound like a lot, 12%. It really isn’t a lot. But given where we’ve been over the last couple years where every market has been unaffordable, the fact that there are any markets in the US that are getting close to historic levels of affordability, again, is good news to me. I know we have a long way to go, but baby steps and we’re taking some baby steps getting there. Now that we’ve talked about affordability, let’s call it our main story for today on this housing market update is about the behavior of sellers in the housing market. This is really important to inventory because the story of this year in 2025, and really honestly for 2022, 23 and 24 has all been about what is happening with housing inventory. It is so important. It is the most important metric for really trying to understand where the market is today and where it might be going in the next couple of months.Because when inventory is high, prices face downward pressure. They might be flat, they might go down a little bit, but you have that downward pressure weighing on housing prices because there are more sellers than buyers. When the opposite is true, when inventory is low, prices have upward pressure. There are more buyers and sellers. They tend to bid up the prices and so prices tend to go up and that’s how inventory influences the market. Now, during the pandemic was an extreme example, an example of super low inventory. But when we started 2025, we were starting to see that story unravel where we were seeing really high inventory growth rates. Now inventory wasn’t high in some historical context, but the growth rate was up. Like we saw in January, February, March, 25% year over year, meaning that in January of 2025, there was 20, 25, 30% in some markets, more homes for sale than there was in January 2024.That matters. That’s a big number. I’d like to call out that we, on the BiggerPockets Podcast, we’re not panicking and saying that the market was going to crash like everyone else was saying, but it puts downward pressure on pricing and it’s something that is really important to watch because if you listen to the Crash Bros, the people who are calling for a whole crash in the housing market, they were saying, “Oh my God, look, inventory is up 25% year over year. Next month it’s going to be 40. Next month it’s going to get 50 or 60.” And yes, that of course is feasible. But did that happen? No. If you fast forward to today, we are not seeing accelerating inventory. We are not seeing inventory spiral out of control month over month over month. Actually, we are seeing the opposite. If you fast forward today and look at the numbers for October of 2025, the most recent data we have for inventory, it’s not up more than 25% year over year.It’s not gone up beyond where it was in January, February, March. The opposite has happened. In fact, right now in October, inventory was up just 4% year over year. So the growth rate in inventory has not exploded. It’s actually contracted and not only has the growth rate slowed down, but we are still below pre-pandemic levels of inventory. If you look at what Redfin shows us, we are about 200,000 homes short in inventory of where we were in October of 2019. So this is under control. This is a crucial thing for everyone to understand about the housing market because it’s one of the reasons why I think we’re going to see roughly flat pricing next year, maybe a little down nationally. And it’s one of the reasons why I’m not super concerned about huge drops in the market right now. But let’s just take a minute and talk about where inventory might go because there’s different ways that inventory changes, right?One way inventory drops is that demand picks up, right? If there’s the same amount of homes for sale, but more people want to buy them, we’ll have less inventory because those homes that are for sale are going to move quicker. The other way that inventory can drop is that new listings go down. That’s basically the number of people who choose to sell their property that can actually go down. And that’s actually gone down quite a bit, right? New listings, people are saying, “Oh my God, people are panic selling. Sellers are flooding the market.” No, they are not. That is just objectively not true. New listings are flat year over year. Don’t listen to any of that nonsense that you might see. People are calling for panic selling like, “Oh my God, everyone’s freaking out. ” No, that’s just not true. New listings are actually up 0.4% year over year.It is completely flat and that shift is not just one month that has been happening for the last couple of months. The big thing that has changed though, it’s not demand, it’s not new listings. The change that is happening right now is what’s called delistings. And this is a new metric. We don’t talk about this a lot on the show, but it is important right now because delistings, which is defined as just a property that was listing for sale that was pulled off the market for more than 31 days without selling or going under contract. And the reason I’m bringing this up is because this is one of the new dynamics that’s kind of emerging and shaping behavior in the housing market. Basically what’s going on in mass is that sellers are looking at the current market. They’re seeing that sales conditions are not as good as they’ve been over the last couple of years.And they’re just saying, “Nah, I’m kind of out on this one. I’m going to wait this one out and see maybe if there’s better conditions for listing or I’m just going to stay in my property. I’m not going to sell it. I’m going to rent it out for another year, another two years. I got to keep living here, whatever.” That trend is really high right now. Actually, home delistings is at the highest level it’s been since 2017. And this increase in delistings helps explain why prices are rising despite sort of tepid home buying demand, because inventory is falling because of this. Remember, new listings are flat. If de- listings go up compared to new listings and demand stays the same, that means that we are getting more balanced supply and demand dynamics. Another reason why this is a sign of a correction, not a crash.If we look at the behavior of selling and what they’re doing right now, it is completely logical. If they are not getting the prices they want, if they don’t want to drop price and they don’t have to sell, they’re just choosing not to sell. And if you dig deep into this data, you’ll see that the areas where de- listings are going up the most are the areas where their strongest buyers market, where basically the areas where it’s the worst time to sell, that’s where people are de- listing the most. Now that makes sense, right? If you don’t like selling conditions, then you de- list your property. And that’s why I say this is a normal correction because what the crash bros say is, oh my God, when inventory goes up and it becomes a buyer’s market, people panic and add more and more inventory to the market.The exact opposite is happening. People say, “Oh, this is not a good time to sell. I’m not going to panic and list my property for sale. I’m actually going to just take my property down off the MLS and not sell it. ” This is what happens during a normal correction. It’s sellers reacting to selling conditions and saying, “I don’t want any part of this. I am going to de- list my property.” So just as an example, the markets with the highest percentage of de- listings are those markets that are correcting. It’s Austin, Miami, Fort Lauderdale, Dallas, Denver. Again, what you would expect because it’s logical. Now, of course, there is a big question mark here. Is this just temporary? Are people just taking their properties off the market for a couple of months and then they’re going to list them in the spring and we’re going to all of a sudden get a flood of inventory?So far, we have some data on this and the answer is no. So far, only 20% of properties that have been de- listed have come back on the market, which in my opinion is pretty low. I was kind of surprised by that. But I do think that’s probably due to seasonality, right? No one is going to de- list their property in September, October, and then be like, “You know what? I’m going to re-list it on Thanksgiving weekend or right before Christmas.” If you are going to de- list it, you’re probably going to wait till at least January or maybe you wait to sort of the hot months of March or April where there’s typically the most seasonal home buyer activity, you might choose to do that. My guess is yes. I think we will see an uptick in real listings in the spring. I think we’ll see that number go from 20% to something higher, maybe 30%, 40%, 50%, because I personally know investors who are doing this.A lot of flippers are saying, “You know what? It’s cooling off right now. I’m going to wait and take my chances in the spring.” I think we’ll see more and more of that, but flippers make up a relatively low percentage of all the homes that hit the market. If you want to understand the broad trends, you have to figure out what’s going on with home owners, traditional homeowners. And we just don’t know right now. I personally, just my guess based on vibes of the market, I think relistings will go up, but it won’t go up to 100%. I think some people are choosing to say, “Maybe I should stay in my existing home or I’ll rent this property back out. ” It really depends on what happens for homeowners. If they start seeing, “Hey, I can move at a better rate and affordability is getting better,” they might move.If not, they’re probably going to stay in their homes. But this is something that we definitely need to watch because as I said, the housing market is going to be built on affordability and inventory. These are the things that we watch most closely. Talked about affordability getting a little bit better right now. That’s great news. Inventorying, leveling out, depending on who you are, you might like this or not like this, but it is going to provide some stability to the housing market. I think it provides that floor for where prices could fall. It can’t fall that much if de- listenings are happening. They can’t fall that much if inventory is leveling out. And so that to me, again, points to a correction, not a crash. But there is one other thing we got to look at. If you want to understand how far the market might fall or where it’s going to go, you need to look at distress because distress, foreclosures, delinquencies matter a lot when prices start to go down.And we’re going to dig into the newest data that we have on that market stress, including into that article. Everyone keeps sending me that there are now 900,000 mortgages underwater. We’re going to talk about all that when we come back from this quick break. Stick with us. Henry, it’s holiday season. What do you get a real estate investor for the holidays? Well, if that real estate investor is me, you can get me a 15-unit apartment building. Oh, does that work? Do people just send you apartment buildings? They are now. Well, I got a suggestion actually. If you are looking for a gift to get a real estate investor, buy them a ticket to the upcoming Texas Cashflow Roadshow. We’re going to be in Texas. We’re going to Austin, Houston, and Dallas from January 13th to 16th, and we’re going to be having meetups, workshops, live podcast recording.We’d love to see you all there. So if you’re thinking you got a friend in the Texas area and they’re trying to get into real estate investing, they’re trying to scale their portfolio, go to biggerpockets.com/texas and go buy them a ticket.Welcome back to the BiggerPockets Podcast. I’m Dave Meyer, giving our December 2025 housing market update. So far, we’ve talked about affordability improving. I love it. It’s great news. It’s wonderful for the housing market. We’ve talked about inventory starting to stabilize. Another good sign that the market is not in free fall. But the last thing we need to cover, which we’ve been covering a lot over the last couple of months, is market stress because we talked about inventory dynamics and why it’s not supporting the idea of a crash on a national level, but of course things can change. And we want to know if the solid sort of foundation of the market could come undone. And to this, we need to look at market stress. And I cover this stuff a lot more than I used to because there’s just so much noise about market crashes that I feel it’s important for me to reiterate that if the market crashes, markets can crash, but there are warning systems in place essentially in the data.We would see some of these things coming, unless there’s a black swan event, right? There could always be a COVID, a nine eleven, something like that that no one sees coming and causes the market to crash. I just want to say those things are always possible, but all the people out there on social media screaming about a housing market crash, they’re all pointing to inventory and demand drying up. I just need to say those kinds of things we have data for, and I’m going to go through it with you right now. First, let’s talk about mortgages being underwater, because there was some article that came out that said, I think it was in MarketWatch or something, 900,000 homes are now underwater on their mortgage. And that sounds scary. 900,000, that’s a lot. It’s one and a half percent of all mortgage holders, which may not sound like a lot, but that’s a reasonable percentage of the housing market when you’re specifically talking about distress, right?Those things can snowball. So is this a big deal? No, not really. I don’t think so. To me, this honestly doesn’t matter that much. I know a lot of people are going to disagree and get mad about this, but hear me out, right? Mortgages being underwater is not a disaster. It is not an emergency. It is something that happens quite frequently. Anytime prices correct or drop in the housing market as a whole, some mortgages are going to be underwater. You haven’t heard this term, underwater just means that you owe more on your loan than the house is worth. So if you went out to sell that property, you would have to come out of pocket to pay back the bank or you’d have to go through a short sale. And that sounds terrible because it’s bad. It is bad. I’m not saying that being underwater is a good thing.It is certainly not. It is really bad. But it is not an emergency because just because your house is underwater does not mean that you need to sell it. It doesn’t mean that you’re going to be foreclosed on. That is not how this works. This is a common misconception I hear people have all the time. They say, “Oh, the bank’s going to foreclose because my house is underwater.” No, no, that is not how it works. Banks only foreclose if you stop paying your mortgage. So houses being underwater happens and the most common reaction to that is waiting. You just do nothing. You just keep paying your mortgage each and every month, and then eventually the market will pick up again and your house won’t be underwater. That is how normal corrections happen. And so I’ve said for months that we were in a correction. So am I surprised that some mortgages are underwater in a correction?No, not at all. That’s what happens. What is an emergency or what can become an emergency, I should say, is forced selling. What happened in 2008 and what would cause a crash again is if there are all these mortgages that are underwater and the people who own those mortgages can’t pay on them. That is a problem. Just in general, when people stop paying their mortgages, that is a problem. That’s when we really start to get worried about a crash. So I’m personally not so worried about mortgages being underwater unless at the same time there is force selling because those two things together can be bad, but mortgages being underwater on their own is not so bad. It is not that big of an emergency. So let’s look at delinquencies. Right now, the data we have for August of 2025 is that delinquency rates did go up 16 basis points.So that’s 0.16% in August compared to where it was the same time last year. That is the first time it’s gone up in a couple of months. Actually, it dropped year over year in June and July. And so I would count that as normal variance right now. We are still below 2019 levels. And again, the reason I say this pre-pandemic level stuff is because stuff got so crazy during 2020 and 2021 that you can’t really rely on the data for that. There was a moratorium on foreclosures in 2020 and 2021, and for some kinds of mortgages, that extended almost into this year. And so the data for the last five years is really hard to rely on. So what I do in this situation is I say, “Hey, what was it in 2019? That was the last normal housing market we had.” And although we are still below those delinquency rates, they’re kind of coming back to that level.So it’s not way better than it used to be, but it’s about where it used to be. So I think that’s really important because in 2019, no one was screaming about a housing market crash or a delinquency crisis or foreclosure crisis. It was just a normal market. And so I think that’s probably where we are these days. Now, if you dig into it and look at FHA loans, there are some increases in delinquencies in FHA and VA loans compared to last year. That is important to know, but those two types of loans had foreclosure moratorium programs in place until this spring. And so seeing them go up from last fall to now is not surprising because those programs expired. And so we’re going to have some increases in delinquencies. But this is something we need to keep an eye on. I personally look every month when FHA and VA loans delinquency rates come out because I do think this could be a warning sign.Like I said, for crashes, there are some warning signs in the data. This is a warning sign. Right now, I don’t think we’re at warning emergency levels, but since it has been going up, I think it’s something that we will keep a close eye on, but you should know it is not at emergency levels right now. Now, delinquencies are one thing, and if they get serious, if we have a lot of serious delinquencies, that leads to foreclosures. Now, foreclosures are up year over year. They’re up 6% year over year. Again, we are coming from artificially low levels of foreclosures due to the pandemic. So I am not surprised to see that they are up year over year. And I am encouraged to see that foreclosure starts, which is kind of the beginning of the foreclosure process, is actually down 10% year over year. So again, this is not like it is spiraling out of control.It’s sort of just to be expected that we are reverting back to normal in terms of delinquency rates and in terms of foreclosures. So is there stress in the market? Yeah, there is a little bit more stress than where it was a year ago, but we are not at emergency levels. And if we start getting towards those emergency levels, trust me, I will be the first one to let you know. I look at this stuff every single month. I have no benefit for telling you that the market is doing well when it is not. I am just telling you, we are still below pre-pandemic levels. Things are starting to inch back up. Where we go from here is a question mark. It is something that we’re going to keep an eye on. But as of right now, there are not significant signs of stress in the housing market.Broadly speaking, American homeowners and investors are paying their mortgages and that is the best sign that we have for stability in the housing market. You add that on top of inventory moderating, you add that to affordability improving. It still looks to me like we are in a correction and not a crash. And to me, that is the best thing that can happen for the housing market because we need affordability to improve, but obviously we don’t want the bottom to fall out and it looks like that’s exactly what’s happening right now. That’s what we got for you today for our last housing market update for 2025. Thank you so much for listening. We will certainly be back with another episode soon. And we, of course, will be continuing our housing market updates in January of 2026 when we get into the new year. Thanks again. I’m Dave Meyer.We’ll see you next time.