Once reality sets in we will start to see prices slowly adjust.
National average construction cost per square foot is $160. $160 * 2000 square feet is $320,000 sans the land which we can assume is 25% the cost of the home constructed on it. So we've magically hit the $400k number.
The only way home prices 'decline' is with population decline, coercion, a recession, or significant regulatory, cultural, and financial shifts.
~2 million people 55+ die every year in the US, and immigration has come to a halt. Not all of those folks will have owned a home, but the vast majority of them will have (first citation), and those homes will be sold. There will be no mass layoff recession due to structural demographics.
Could the US have encouraged more workers to go into the trades with better wages and unions to increase the rate at which the US built houses? Certainly, that was a policy path, and the path I would've chosen. Was impairing inbound immigration another path to destroy domestic housing demand to reduce competition for it when the choice was made to not use policy to increase unit delivery to increase supply (with rising interest rates causing existing home valuations to fall)? It appears so.
US Census: Annual Homeownership Rates for the United States by Age Group: 1982-2025 - https://www.census.gov/housing/hvs/data/charts/fig07.pdf
Population Decline Was Decades Away. Now It’s At America’s Door - https://www.bloomberg.com/news/newsletters/2026-01-31/popula... | https://archive.today/VVOUJ - January 31st, 2026
The US Is Flirting With Its First-Ever Population Decline - https://www.bloomberg.com/news/articles/2026-01-30/trump-imm... | https://archive.today/LdA0d - January 30th, 2026
US Population Growth Slows Sharply Due to Less Immigration - https://www.bloomberg.com/news/articles/2026-01-27/us-popula... | https://archive.today/ePDmG - January 27th, 2026
Map Shows 21 States Where Deaths Now Outnumber Births - https://www.newsweek.com/map-shows-21-states-where-deaths-no... - June 30th, 2025
US Population Set to Shrink by 2033 Without Immigration, CBO Says - https://www.bloomberg.com/news/articles/2025-03-27/us-popula... | https://archive.today/NdTvX - March 27th, 2025
- "The share of below-3% mortgages outstanding, by number of mortgages, declined to 20.0% of all mortgages outstanding in Q3, the smallest share since Q1 2021, and down from a share of 24.6% at the peak in Q1 2022 (red in the chart), according to data by the Federal Housing Finance Agency (FHFA)."
The Great Housing Freeze: Half of Homeowners Have a Sub-4% Mortgage Rate—and Few Reasons To Move - https://www.realtor.com/news/trends/outstanding-mortgage-rat... - October 22nd, 2026
- "Data from the Federal Housing Finance Agency's National Mortgage Database analyzed by the Realtor.com® economic research team shows that millions of homeowners are locked in to lower rates, with almost half (49%) holding a fixed rate below 4%."
These low rate mortgages will drain from the system over time, as the vast majority of notes are not assumable and will have to be satisfied at transfer.
Home Prices Are Starting to Fall in Some Pockets of the U.S. - https://news.ycombinator.com/item?id=50203248 - October 2026
Stubborn Sellers Are the Last Thing Propping Up Home Prices - https://news.ycombinator.com/item?id=50096330 - October 2026
https://news.ycombinator.com/item?id=50203261
("Note the trend. Just as the Fed drains M2 with quantitative tightening, time is needed to drain inflated residential real estate equity, grounded in mortgage rates (priced off of treasuries) and what wages can support.") (me, 7 months ago)
https://news.ycombinator.com/item?id=47596362
Tangentially related to how private equity is in a very unfavorable position at current valuations and continues to extend and pretend as long as possible before having to mark to current valuations and attempt to refinance debt loads at current money costs.
A $300B 'Debt Wall' Is Looming over Private-Equity Backed Companies - https://news.ycombinator.com/item?id=50260526 - October 2026
https://news.ycombinator.com/item?id=50262716
- “PE has a glut of 32,000 companies ($4T in equity) they can't sell and the average hold time is extended past 8 years.”
In hindsight, root cause analysis, it was not a good idea for the Fed to provide unlimited support to mortgage backed securities bonds during the pandemic. All of that money flowed from the bond market into unsustainable real estate equity valuations that are now readjusting to reality through time and transactions. Alas, we win or we learn.
A big part of why home prices are too high is that money has been too cheap. Most home buyers shop on the basis of a monthly payment. Same with cars.
We've had higher rates since 2022-2023 and prices did not come down*, they flatlined or even went up in the desirable areas.
*) in EU
Wikipedia: loss aversion - https://en.wikipedia.org/wiki/Loss_aversion
Housing Market Update: Sellers’ Asking Prices Fall For the First Time Since March - https://www.redfin.com/news/housing-market-update-asking-pri... - October 15th, 2026
- Home prices are losing momentum. The median U.S. home-sale price rose just 0.5% year over year, the slowest growth rate since March. The median asking price fell 0.3% year over year, its first decline since March. Some relief could be on the horizon for buyers.
- Mortgage rates are still a vital stat for homebuyers and sellers. The weekly average mortgage rate hit a 3-year high of 7.4% on October 8. Daily average rates have eased slightly in recent days, dipping to 7.45% on October 14 from 7.61% about a week earlier.
- The typical homebuyer’s monthly payment is $2,777, the highest level on record except the previous week. That’s due to high mortgage rates and still-increasing home prices.
- Homebuying demand remains near record low. Pending home sales ticked up 1.5% from a week earlier–perhaps thanks to rates easing ever-so-slightly–but were still near their lowest level in records dating back to 2021. That includes the end of 2023, when mortgage rates were nearing 8%. Pending sales declined year over year in all 50 of the most populous U.S. metro areas.
- Price drops are at a record high. As sellers come to terms with prices losing steam, more of them are dropping their prices: 22% of home sellers with active listings cut their asking price, up from 20.9% a year earlier and the highest level in our records. [My note: draw attention here]
Sellers who want to (or must) sell now will lower their prices. Sellers who don't will wait, and encounter lower price levels as mortgage rates continue to rise in step with the 10Y. As long as structural demographics ensure a strong labor market (which they will), interest rates will continue to rise both from the Fed raising short term rates and from a capital shortage pushing up longer rates. Forward debt price curve up is real estate price curve down, very simply.
https://www.ustreasuryyieldcurve.com/ (all consumer debt is priced off of US treasury rates, including mortgage debt)
https://www.apollo.com/wealth/insights-news/insights/daily-s...
https://blog.sentinel-team.org/p/special-report-rising-bond-...