U.S. Home Prices Rise Modestly as FHFA Data Shows Growing Regional Gaps

Introduction

By late 2025, the FHFA House Price Index (HPI) paints a picture of U.S. home prices moderating without plummeting, highlighting resilience in mid-tier markets amid broader economic pressures. FHFA HPI, which tracks repeat-sales of single-family homes financed through conforming loans, rose 2.2% year-over-year in Q3 2025—the slowest pace since mid-2023.

What this means: The housing market is cooling, like an engine downshifting after high speed: no crash, just steadier, more sustainable growth. Mid-tier homes are buffering urban softness, reflecting uneven recovery where local jobs, migration, and supply matter most. This signals more predictable conditions: potential entry points for buyers, slower equity swings for sellers, and a market shaped by affordability rather than speculation.

National Trends

The FHFA HPI shows slowing but steady appreciation: quarterly growth rose only 0.2% Q2→Q3 2025, and September’s monthly index was flat. Prices rose in 44 states overall, indicating broad-based moderation rather than localized weakness. Mortgage rates averaged ~6.0–6.2%, curbing buying power and slowing demand.

These small gains signal a market plateau, where home values are holding but appreciation is muted. For homeowners, equity growth continues—but modestly—providing stability. For buyers, slower growth means more negotiating leverage, especially in metros where prior rapid gains priced newcomers out. This also implies reduced risk of sudden price drops, helping local economies maintain balance between housing costs and consumer spending.

Transaction activity remains subdued. First-time buyers made up only 21% of 2025 deals (median age 40), and overall turnover is slow.

Fewer new buyers entering the market reinforces the plateau, as most sales are from repeat buyers with equity. This limits dynamic market activity, meaning homeownership for younger generations is delayed, while markets rely on equity-rich participants to sustain price levels.

Regional and Metro Patterns

1. Stronger regions: Northeastern and Midwestern metros performed best. Census divisions such as Middle Atlantic (+5.7%), East North Central (+4.5%), and South Atlantic (+3.2%) saw solid growth, supported by robust local employment, constrained inventory, and steady demand. Top metros: Allentown-Bethlehem-Easton, PA (+9.7%) and Scranton-Wilkes-Barre-Hazleton, PA (+8.5%).

Steady price growth in these areas indicates stable housing markets, where limited supply prevents sharp swings. Buyers face competition, but equity accumulation for current homeowners is reliable. This shows that regional economic fundamentals strongly influence FHFA trends, emphasizing why some mid-tier markets outperform high-cost urban areas.

1. Softening regions: Sun Belt and Pacific metros softened. Cape Coral-Fort Myers, FL (-10.8% quarterly), Austin-Round Rock, TX (-5.2%), and Miami-Fort Lauderdale-West Palm Beach (-4.8%) faced declines.

These losses represent a correction after pandemic-era booms. Rapid migration, overbuilding, and high costs are now being balanced by affordability constraints. Buyers may find opportunities for negotiation, but sellers must adjust expectations. The data highlight that local conditions can diverge sharply from national averages, making metro-specific analysis essential for understanding the real market picture.

FHFA vs. Case-Shiller: Understanding the Divergence

1. FHFA HPI: +2.2% YoY → broader mid-tier homes nationwide, lower volatility.
2. Case-Shiller 20-City Composite: +1.4% YoY → major urban/luxury homes, higher sensitivity to rates.

The divergence reflects market segmentation. Mid-tier homes tracked by FHFA remain relatively resilient, while high-cost metro properties tracked by Case-Shiller are softening due to mortgage sensitivity. National averages may mask underlying stress in urban luxury markets, and looking at FHFA data can provide a clearer view of stability in more typical, financed homes. It also signals uneven affordability pressure, highlighting regions and segments where buyers may be sidelined or able to negotiate.

Macroeconomic Drivers

1. Mortgage Rates: 30-year fixed rates averaged ~6.0–6.2%.

Higher borrowing costs reduce buyers’ purchasing power by ~20% compared to pre-pandemic lows. This directly slows FHFA HPI growth, as fewer buyers can afford median-priced homes, causing monthly/quarterly indices to flatten. It also explains why mid-tier markets remain more stable: equity-rich repeat buyers can absorb the higher rates, while first-time buyers are sidelined.

1. Inflation: CPI rose 2.7% YoY in November 2025, slightly above FHFA’s 2.2% nominal gains.

Nominal wage growth does not keep pace with inflation, meaning real purchasing power for buyers is declining. Even when prices appear stable, households are effectively paying more relative to income. This dynamic explains why affordability remains a key constraint despite modest FHFA price increases.

1. Housing Supply: Existing-home inventory stood at 1.43 million units (4.2 months’ supply).

Limited supply prevents sharp price declines, acting as a stabilizing force. For buyers, low inventory maintains competition and moderate prices; for sellers, it provides a floor under values, mitigating risks of a severe downturn.

Market Implications

1. Affordability pressures continue to limit first-time buyers, now just 21% of transactions (median age 40).

Low entry-level participation slows turnover and locks out younger households, reinforcing reliance on repeat buyers with equity. This dynamic supports mid-tier stability but reduces market dynamism.

1. Regional opportunities: Buyers in cooling Sun Belt and Western metros may find negotiation leverage, while Northeastern and Midwestern markets provide steadier, predictable growth.

Understanding FHFA trends helps identify where buying power is strongest, and where long-term equity growth is most likely. Investors and buyers can prioritize metros with stable fundamentals for lower-risk decisions.

1. Transaction volumes are likely to remain subdued until rates decline or incomes rise.

Slow turnover reinforces the market plateau, preventing bubbles but also limiting new entrants. For the economy, this means housing supports wealth stability for current owners but contributes less to broader consumer spending and homeownership growth.

Affordability Metrics

1. NAR Housing Affordability Index: 106.2 in October 2025 (barely qualifying typical families for median-priced homes).
2. Monthly payments: Median home price ~$409,200 → ~$2,000 principal/interest at 6.0–6.2% (28–35% of median $84,000 household income including taxes/insurance).

Affordability remains strained even with modest FHFA growth. Nominal price gains are outpaced by inflation, making real affordability worse. This explains why first-time buyer participation is low and why markets rely on equity-rich repeat buyers. Small nominal increases mask significant real purchasing pressures.

Forward-Looking Outlook

1. Price growth: 1–2% expected in 2026, with regional disparities persisting.
2. Drivers: Stable employment and tight supply support gains in strong metros; oversupplied or rate-sensitive areas could face flat or slightly declining prices.
3. Market signals: Rate cuts or wage growth would increase demand; prolonged high rates or job weakness could extend moderation.

FHFA data suggest a slow, balanced market adjustment rather than boom or bust. Buyers should watch mid-tier metro trends for affordable entry points, while sellers in cooling regions may need realistic pricing. Overall, the FHFA HPI serves as a barometer of stability in the broader U.S. housing market, reflecting mid-tier homes where most Americans transact.

Data Considerations

1. FHFA HPI excludes jumbo loans, cash sales, and private mortgage insurance → underrepresents high-end/luxury segments.
2. Case-Shiller emphasizes major metros and higher-priced homes → shows urban/luxury volatility.
3. National economic indicators may not fully capture local differences in employment, income, or affordability.