A Cooling Market Meets Rising Costs
For the first time in nearly a decade, U.S. home prices are rising slower than inflation, signaling that many homeowners are losing real value on what was once considered the safest long-term investment.
According to new data from the S&P CoreLogic Case-Shiller Index, national home prices rose 2.1% year over year, while consumer prices increased 3.4% in the same period. That gap, analysts say, means that even as nominal prices climb, the purchasing power of home equity is shrinking.
“Homeowners may see higher appraisals, but in real terms, they’re falling behind,” said Mark Zandi, chief economist at Moody’s Analytics. “When inflation outpaces home appreciation, the asset that’s supposed to hedge inflation starts working against you.”
From Boom to Breather
The housing market’s slowdown follows years of record-breaking appreciation driven by pandemic-era demand, low interest rates, and limited supply. But as borrowing costs remain near 7% and household budgets tighten, home price growth has cooled sharply.
“The frenzy is over,” said Selma Hepp, chief economist at CoreLogic. “Buyers are hitting affordability walls, and sellers can’t push prices higher without losing traction.”
The impact is most visible in metro areas that saw explosive growth between 2020 and 2022 – places like Austin, Boise, and Phoenix, where prices are now flat or slightly negative in inflation-adjusted terms.
The Real Returns Problem
For homeowners who purchased during the recent peak, the math has turned sobering. Even if a property’s value rises 2–3% annually, inflation above that level means the owner’s real wealth is eroding.
“If your home appreciates slower than inflation, you’re effectively losing money in real terms,” explained Nancy Vanden Houten, lead U.S. economist at Oxford Economics. “You might feel richer on paper, but your purchasing power is shrinking.”
The issue is compounded by rising property taxes, insurance costs, and maintenance expenses, all of which have outpaced both inflation and wage growth. In Florida and California, for instance, average homeowner insurance premiums are up 40–60% year over year.
Inflation Eats Away at Equity Gains
Historically, real estate has been viewed as a hedge against inflation, a tangible asset that holds value as currency weakens. But the current cycle challenges that assumption.
“Real estate’s inflation hedge works when supply is constrained and credit is cheap,” said Zandi. “Today, we have the opposite: elevated mortgage rates, high construction costs, and demand that’s plateauing.”
The median U.S. home price, now around $412,000, has climbed roughly 1.9% since January, but adjusted for inflation, that’s effectively a decline of about 1.2%, according to data from Redfin.
Meanwhile, the Consumer Price Index for shelter continues to rise, reflecting higher rents and operating costs rather than gains in homeownership value.
Regional Gaps Widen
Not all markets are equal. Some cities – including Chicago, Cleveland, and Tampa — are still outperforming inflation, supported by steady job growth and migration trends.
But in major coastal markets like San Francisco and Seattle, price growth has slowed to under 1%, well below the inflation rate. In many of these areas, buyers who entered at peak prices in 2021 or 2022 are now “underwater in real terms”, even if they haven’t lost nominal equity.
“Coastal markets are now correcting in slow motion,” said Danielle Hale, chief economist at Realtor.com. “They’re not crashing – they’re deflating quietly under the weight of inflation.”
A Caution for Investors
For real estate investors, the inflation gap is reshaping strategy. Rental yields have flattened, and rising maintenance costs are squeezing margins. According to Zillow, average net rental returns have dropped from 7% in 2022 to around 4.8% in 2025, even as demand for rentals remains robust.
“This is an environment where leverage is punishing, not rewarding,” said Hale. “Investors who financed heavily at low rates are finding that inflation-adjusted returns don’t justify the risk.”
In response, some investors are shifting toward short-term rentals, mixed-use developments, and overseas markets, where inflation dynamics and yield potential differ.
Homeowners Feel the Strain
For everyday homeowners, the situation is less about strategy and more about resilience. Rising costs for energy, insurance, and taxes are eroding disposable income, while wage growth has plateaued.
“People bought expecting housing to be their inflation hedge,” said Hepp. “Now, it’s acting more like a liability that’s getting more expensive to maintain.”
Mortgage rate volatility adds another challenge. With refinancing options limited and new buyers sidelined, liquidity in the housing market is drying up, trapping owners in properties that no longer build real wealth.
What It Means for the Market
Economists say the imbalance between home price growth and inflation could persist through early 2026. Unless the Fed’s rate cuts meaningfully revive demand, housing may underperform other asset classes, a reversal from the last decade.
“The housing market isn’t collapsing, but its inflation-adjusted returns are near zero,” said Vanden Houten. “That’s a very different reality from the one homeowners got used to during the pandemic boom.”
Still, analysts caution against overreacting. Over the long term, real estate remains a store of value and stability, particularly in supply-constrained regions. But for now, the message is clear: housing is no longer beating inflation, it’s barely keeping up.
