The DC Metro area has seen prices drop by about 4% in 2025, giving back some of the escalated prices due to the scarcity of inventory during COVID and the incredibly low mortgage rates. Over the last year the DC metro area has also been impacted by DOGE firings and the long government shut down, creating job insecurity particularly among first time homebuyers. Wirtten by Lise Howe, Associate Broker with RLAH in Chevy Chase, an expert on first time homebuyers.
Prices have shifted in some top real estate markets. After 17 years of steady increases, it stands to reason that prices had to adjust so that people can afford to continue buying homes. Add to that a roller coaster stock market, continued higher mortgage rates and an increase in inventory, it seems inevitable that the market is going to be impacted. In the DC area we have been hit with the impact of DOGE and then the longest running government shut down. 2025 is happily in the rear view mirror and not soon enough!
So where is the market softening? It turns out that in December, median home prices declined 0.6% year over year nationwide, according to the Realtor.com® December 2025 Monthly Housing Trends report. Regionally, prices fell 1.1% in the South and 1.8% in the West since the beginning of 2025. In the last 12 months, housing prices fell in 26 of the largest metro areas year over year. One reason for these price declines is diminishing demand.
“It was a really slow 2025, and I think the big reason for that is economic uncertainty among buyers,” says Joel Berner, senior economist at Realtor.com. “People are really worried about their income and not really feeling like it’s a great time for them to make a move.”
The metro with biggest price drop was Austin, TX
Of the 50 largest metros, Austin–Round Rock–San Marcos, TX, saw the biggest price drop in the last 12 months, with median home prices falling 7.3%.
“The main reason is inventory growth, especially in Austin, which had the largest price decline,” says Berner. “Inventory is above pre-pandemic levels, and there are just a lot of homes on the market. There are several reasons for that, but it seems that mortgage rates and affordability are keeping people out of the market and keeping things pretty slow.”
Berner says that, as a result, sellers are having to compete with each other a lot more. “We’re seeing a lot of price cuts and a lot of softness in those prices just because there are more homes on the market,” he explains. The pandemic also has something to do with the reduction in Austin prices.
“In Austin, we have been all over the news as the No. 1 major metro to have prices go down, but it is simply because we had the most drastic spike during the pandemic,” says Samantha Midler of Austin Portfolio Real Estate. “Texas had looser restrictions and wide open spaces, so everyone and their mother moved here. It was an artificial demand that was crazy and unsustainable.”
Berner agrees, saying, “In some of these Sun Belt markets where prices just got super out of whack a few years ago, they are slowly getting back to where they should be.”
Midler says now that prices have come back down to earth, the market is starting to move.
Pair of California metros also saw major home price declines
Two metros in California ranked in the top five for large metros experiencing the biggest year-over-year price drops.
In San Diego–Chula Vista–Carlsbad, median home prices plunged 6.7% and San Jose–Sunnyvale–Santa Clara saw median home prices dip 5.5%.
California agent Cara Ameer tells Realtor.com, “When you have the perfect storm of higher interest rates, inflation, higher homeowners insurance costs, and high condo fees, buyers aren’t able to easily buy, and prices drop as a result.”
Since renting can be significantly more affordable than buying home in California, that also has an impact on home prices and demand.
“The affordability question really comes into play in California,” says Berner. “Folks feeling like they can’t afford a monthly payment is a big problem, so people are just choosing to remain renters.”
Berner says there’s a lot of softness in the rental market, especially out West.
Minneapolis and Washington, DC, also saw price slumps
The other cities that round out the top 5 of largest metros recording the most significant price drops in December are Minneapolis and Washington, DC.
In Minneapolis–St. Paul–Bloomington, MN-WI, median home prices ticked down 4.9%.
“Market conditions always dictate pricing. Certainly in many price points, interest rates and lack of buying power have had a profound impact,” Jeffrey Dewing of Coldwell Banker Realty in Minneapolis tells Realtor.com. “A lot of buyers, especially in the sub-million-dollar market, are waiting for interest rates to drop. We always see an influx in showing activity after interest rate drops are announced.”
However, he says, “Our buyers locally are more focused on finding the right home rather than waiting on the sidelines for price reductions, because good properties that are priced appropriately are moving swiftly.”
In Washington–Arlington–Alexandria, DC-VA-MD-WV, median list prices fell by 4.8%.
Recent mass layoffs, buyouts, and government shutdowns have shaken the traditional notion of federal employment as secure, fostering unease among workers and affecting local housing markets.
It is no surprise that there is considerable weakness in the first-time homebuyer market here. Many first-time homeowners are faced with uncertainty in the local job market. If we couple this with the interest rates, it makes first-time buyers reluctant to move forward, It is hard for some sellers to accept that prices are coming down and that they need to reduce their own list prices. The pandemic inflated home prices but the pressures inherent in the pandemic are gone and prices need to reflect that. Nonetheless, some sellers are opting to rent rather than sell, unless it is an estate sale or there is a divorce or relocation making a sale essentially mandatory.
Even so, Schaeffer says some sellers are opposed to reducing prices due to pandemic-level expectations. “We have had a number of sellers rent their properties rather than sell, unless it is an estate sale or a forced sale due to divorce or relocation.”
All of this argues in favor of careful pricing from the outset. Homes in good condition that are well priced are still selling – and they are selling quickly.
If you are thinking of selling your home this year, we should definitely talk about strategy. A changing market means a changing strategy – not a panic. You can reach me at 240-401-5577 or email me at lise@lisehowe.com