Major Metro Areas Expected to Decline
While smaller cities show the sharpest drops, Zillow also projects declines in several large metro areas:
New Orleans, Louisiana – -7.2%
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- Impacted by skyrocketing insurance premiums along the Gulf Coast.
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- Tourism declines and urban vacancy are also contributing factors.
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San Francisco, California – -6.1%
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- Home prices surged beyond local income fundamentals.
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- Median home price is still around $1.3M, far outpacing wage growth.
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- High taxes, insurance, and earthquake risk amplify affordability challenges.
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Austin, Texas – -5.1%
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- Once a pandemic darling, Austin has seen overbuilding.
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- Strong population growth, but new supply has outpaced demand.
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San Jose, California – -4.0%
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- Similar to San Francisco, prices soared beyond sustainable levels.
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- Average home value sits near $1.46M, making affordability difficult.
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Honolulu, Hawaii & Denver, Colorado (tie) – -3.8% each
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- Honolulu: Rarely sees price drops, but pandemic-era price surges pushed values beyond local fundamentals.
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- Denver: Popular during the pandemic, but values climbed too quickly relative to incomes.
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What’s Driving These Declines?
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- Insurance Premium Hikes – Especially in Gulf Coast and wildfire-prone areas.
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- Overbuilding in Growth Markets – Cities like Austin face too much new supply.
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- Overshooting Local Fundamentals – Coastal hubs like San Francisco and San Jose rose faster than incomes could support.
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- Tourism & Economic Headwinds – Markets like New Orleans rely heavily on hospitality and tourism, which remain volatile.
Should Investors Be Concerned?
While home price declines grab headlines, investors should remember:
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- Real estate markets move slowly compared to the stock market.
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- Declines of 5–10% in housing are considered significant events.
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- Inventory is rising, bidding wars are fading, and days on market are climbing—all signs of a market correction.
But that doesn’t mean investors should panic. Instead, it’s a reminder that:
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- Location matters more than ever. Not all cities are declining—many are stable or still appreciating.
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- Cash flow beats speculation. Investors focused on rental income rather than price appreciation are better positioned.
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- Diversification is key. Don’t put all your capital into one property type or city.
