Housing Markets Projected to Fall in 2025: The Cities at Risk

At a Glance

• • Certain U.S. housing markets are projected to see significant price declines in 2025, with smaller cities like Greenville, MS (-16.7%) and major metros like New Orleans (-7.2%) and San Francisco (-6.1%) most at risk.
    

• • Key factors driving these declines include rising insurance premiums, oversupply in fast-growing cities, and home prices that overshot local income fundamentals (especially in coastal and Sun Belt markets).

• • For investors, the focus should shift from speculation to fundamentals—prioritizing cash flow, diversification, and strong locations rather than relying solely on price appreciation.

For decades, home prices in the United States have been surprisingly resilient. In fact, during four of the last six recessions, home values actually increased rather than declined. The Great Recession was the rare exception, as it was triggered by the housing collapse itself.

That’s what makes today’s market so unusual. Nationwide, home prices are starting to soften, and Zillow projects a 1% decline in home values over the next year. While that number may sound modest, it’s important to remember:

• • A 5% drop in the stock market is a small correction.

• • A 5% drop in home prices is a major deal.

• • A 10% drop in home values is considered a housing bear market.

Some local markets will continue to grow, but others are already flashing warning signs of significant declines. Below, we explore the small cities most at risk and the major metro areas projected to see the steepest declines in 2025.

Small Cities with the Steepest Projected Home Price Declines

According to Zillow’s 12-month forecast, these smaller markets face the biggest risks of falling property values:

• • Greenville, Mississippi – projected to fall 16.7%

• • Clarksdale, Mississippi – projected to fall 14.8%

• • Pecos, Texas – projected to fall 13.7%

• • Cleveland, Mississippi – projected to fall 13.6%

• • Bennettsville, South Carolina – projected to fall 11.9%

Key Trend:  Many of these markets are in the Sun Belt and particularly the Gulf Coast region, where soaring homeowners’ insurance premiums are straining affordability. Buyers calculate monthly costs based not just on mortgage payments, but also on property taxes and insurance. As insurance costs spike, purchasing power shrinks, and home values follow

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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%

• • • • Impacted by skyrocketing insurance premiums along the Gulf Coast.
    • • Tourism declines and urban vacancy are also contributing factors.

San Francisco, California – -6.1%

• • • • Home prices surged beyond local income fundamentals.
    • • Median home price is still around $1.3M, far outpacing wage growth.
    • • High taxes, insurance, and earthquake risk amplify affordability challenges.

Austin, Texas – -5.1%

• • • • Once a pandemic darling, Austin has seen overbuilding.
    • • Strong population growth, but new supply has outpaced demand.

San Jose, California – -4.0%

• • • • Similar to San Francisco, prices soared beyond sustainable levels.
    • • Average home value sits near $1.46M, making affordability difficult.

Honolulu, Hawaii & Denver, Colorado (tie) – -3.8% each

• • • • Honolulu: Rarely sees price drops, but pandemic-era price surges pushed values beyond local fundamentals.
  • • • Denver: Popular during the pandemic, but values climbed too quickly relative to incomes.

What’s Driving These Declines?

• • Insurance Premium Hikes – Especially in Gulf Coast and wildfire-prone areas.

• • Overbuilding in Growth Markets – Cities like Austin face too much new supply.

• • Overshooting Local Fundamentals – Coastal hubs like San Francisco and San Jose rose faster than incomes could support.

• • 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:

• • Real estate markets move slowly compared to the stock market.

• • Declines of 5–10% in housing are considered significant events.

• • 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:

• • Location matters more than ever. Not all cities are declining—many are stable or still appreciating.
• • Cash flow beats speculation. Investors focused on rental income rather than price appreciation are better positioned.
• • Diversification is key. Don’t put all your capital into one property type or city.

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Final Takeaway

Home price corrections are rare, but when they happen, they create both risks and opportunities. With insurance costs rising, inventory building, and affordability stretched, some markets are due for pullbacks.

For investors, the lesson is clear:

• • Don’t try to time the market. 

• • Focus on long-term fundamentals like cash flow and location.
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  • Remember that residential real estate and commercial real estate behave differently, so diversify accordingly. 

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Sources

https://www.corelogic.com/

https://www.redfin.com/news/data-center/

https://www.nar.realtor/research-and-statistics

https://www.moodysanalytics.com/