More than half of U.S. homes have dropped in value over the last year — and nearly all houses in these cities have seen losses

Zillow data shows 53% of U.S. homes saw their Zestimates fall in October—the highest share since 2012 and up from 16% a year earlier—with declines concentrated in the West and South (Denver 91%, Austin 89%, Sacramento 88%, Phoenix 87%, Dallas 87%). The average drawdown from peak values has widened to 9.7% (from 3.5% in spring 2022) but remains well below the 2012 trough, and most owners retain significant equity: median values are up 67% since last sale and only 4.1% of homes have lost value since purchase, leading Zillow to call this a normalization rather than a crash. The weakness reflects a market frozen by 2022–23 Fed rate hikes and constrained new supply that shifted power to buyers and spurred delistings, but the NAR forecasts a sales rebound in 2026 (existing-home sales +14%, new-home sales +5%) and a 4% rise in prices, implying stabilization ahead though timing risks remain.

Analysis

Zillow reports that 53% of U.S. homes saw their Zestimates decline in October — the highest share since 2012 and up from 16% a year earlier — with declines concentrated in the West and South (Denver 91%, Austin 89%, Sacramento 88%, Phoenix 87%, Dallas 87%), while the Northeast and Midwest have largely avoided widespread drops. The average drawdown from peak valuations widened to 9.7% (from 3.5% in spring 2022), though this remains well below the 27% average drawdown in early 2012, and only 4.1% of homes have lost value since their last sale while median values are still up 67% since the last sale. The market weakness reflects the fallout from 2022–23 Fed rate hikes that raised borrowing costs and froze turnover as homeowners sat on ultra-low mortgages, and constrained new supply kept prices elevated even as demand softened and delistings surged. Looking ahead, the National Association of Realtors projects a measurable recovery in 2026 (existing-home sales +14%, new-home sales +5%, and a 4% rise in prices), but the timing of that rebound and the pace at which paper losses convert into realized losses remain key near-term risks for housing-linked investments.

Key Decisions for Investors

• Consider trimming or avoiding incremental exposure to residential real-estate assets and securities concentrated in the West and South markets cited (Denver, Austin, Sacramento, Phoenix, Dallas) given outsized recent price deterioration
• Favor credit or mortgage-linked exposures with low loan-to-value profiles and strong homeowner equity buffers because Zillow shows median home values remain 67% above last-sale levels and only 4.1% of homes have lost value since purchase
• Monitor near-term leading indicators — mortgage rates, active listings/inventory, delisting trends, and monthly existing-home sale reports — and wait for sustained improvement before adding cyclical housing or homebuilder positions
• If maintaining exposure, use portfolio hedges or size positions conservatively to account for the risk that paper drawdowns (now 9.7% on average) could deepen or spread before the NAR-projected 2026 recovery materializes