Why 53% of American Homes Are Experiencing Value Declines—And Why It's Not a Housing Collapse

The real estate landscape is shifting dramatically. Zillow’s latest research reveals that house prices dropping has affected more than half of all US homes in the past year, with 53% losing value—the highest percentage since 2012. Average declines have hit 9.7%, painting what seems like a bleak picture for homeowners. But before panic sets in, the numbers tell a more nuanced story than headlines suggest.

The Reality Behind the Decline

Here’s what makes this situation less catastrophic than it appears: while house prices dropping is widespread, actual financial damage remains contained. Only 4.1% of homes are now worth less than their last sale price, and the typical homeowner has still gained 67% in value since their initial purchase. This distinction matters because it reveals that most homeowners remain in positive equity positions despite recent declines.

Darren Tooley, senior loan officer at Cornerstone Financial Services, offers crucial perspective: “What we’re seeing is a broad normalization after several years of unsustainably fast appreciation.” The pandemic-era housing surge created artificial momentum. Low interest rates and pandemic-driven migration fueled rapid appreciation that simply wasn’t sustainable. Today’s cooling represents market correction, not collapse.

Slowing Growth Signals Market Stabilization, Not Freefall

Selma Hepp, chief economist at Cotality, points to the deceleration in price growth as evidence of a maturing market. Home price increases slowed to just 1.8% in 2025, and Cotality forecasts approximately 3% growth for 2026, with regional variations between 2% and 4%. If inflation stays elevated, real price growth could remain flat—actually beneficial for affordability without triggering distress sales.

The key distinction: house prices dropping gradually alongside slowing growth is fundamentally different from a market collapse. A collapse would feature panic selling, plummeting inventory, and widespread distressed properties. Instead, the current environment shows inventory remaining historically tight at just 4.7 million units nationwide, according to recent Zillow data.

Geography Determines Your Market’s Trajectory

Not all regions face equal pressure. Tooley emphasizes that tight inventory creates a floor for prices: “If mortgage rates continue to drop, most cooling markets will likely heat up again.” This regional variation shapes 2026’s outlook:

Growth Markets: The Northwest and Midwest are positioned for 3-4% appreciation, driven by limited housing stock and steady demand. The Northeast continues benefiting from high-paying job centers and affordable suburban communities appealing to hybrid workers.

Adjustment Zones: Sun Belt and Western regions—which surged during the pandemic—face headwinds from rising insurance costs, property taxes, and HOA fees. House prices dropping more noticeably here as pandemic-era migration reverses and affordability concerns reemerge.

Vulnerable Coastal Areas: Cities with elevated insurance expenses and post-disaster coverage challenges may see prices stabilize or decline modestly.

Migration Patterns Shifting Back to Economic Fundamentals

The pandemic’s remote-work revolution pulled workers and capital toward Sun Belt destinations. That trend is reversing. As employees return to offices and workers with favorable rate-lock mortgages list properties strategically, migration patterns are normalizing. Job growth, affordability, and lifestyle fundamentals—not pandemic speculation—are reasserting influence.

This rebalancing, while creating house prices dropping in overheated markets, simultaneously opens opportunities for buyers who sat on the sidelines during the appreciation frenzy. A cooling market doesn’t mean distress; it means better balance between supply and demand, closer to historical norms.

The Bottom Line: Cooling, Not Collapsing

The distinction matters enormously. Yes, house prices dropping across more than half of American homes signals adjustment. But sustained homeowner equity, tight inventory, and regional variation paint a picture of market normalization rather than systemic failure. How the Federal Reserve manages interest rates in 2026 will ultimately determine whether cooling markets reheat or continue moderating—but either scenario falls well short of collapse.