Americans have come to count on their single largest asset — their house — to continue to appreciate. Today, we take a look at what happens when that closely held assumption isn’t the case.

Recent years have shown that what the housing market can give, it can also take away. While many markets have seen appreciation compared to pre-pandemic levels, some have shown signs of deterioration since 2022. We’re highlighting some of these markets — and what’s driving them down.

Normalization station: Earlier this year, we wrote about how many homeowners were struggling to sell their homes as sellers outnumbered buyers. That trend seems to be playing out in markets that got especially hot during the pandemic — and are now undergoing a kind of normalization — driven by lofty price expectations from homeowners, financial realities for buyers, and current job market conditions. Some of the sharpest declines have hit metros in Texas, Florida, Louisiana, and California, among others.

• At the top of the list is Austin, TX, which has seen a 26% drop in home values since its 2022 peak — the largest decline among the 250 biggest metros — driven by new construction and a post-COVID exodus.
• Year-over-year, Punta Gorda, FL (-13.3%) saw the biggest price drop, followed by Cape Coral-Fort Myers, FL (-10.5%) and North Port-Sarasota-Bradenton, FL (-9.2%) — ranking them as the second, third, and fourth largest decliners.

Sun Belt Struggles

It’s hard to ignore how many of the worst-off markets are in the Sun Belt — and particularly, the Southeast. These regions experienced robust economic growth during the pandemic, no doubt — but they’re now demonstrating that the old adage about housing growth might be more of a norm, not a rule.

• New home construction (supply) and a glut in luxury apartment rentals have certainly affected the housing picture in some markets, but so have factors like lower immigration (demand).
• There could be more room for home prices to normalize in areas that have seen massive appreciation since 2020 — some of which are still up more than 50% over the period.

A small consolation: The silver lining for many homeowners is that they’re locked into generationally low interest rates and still have a roof over their heads, even if it hurts to look at the declining estimates of their home value.

But a warning… There are almost a million households — about 1.6% of homeowners, mostly buyers from the last 3.5 years — who are now underwater on their mortgage, which could place them in a precarious position if they run aground of financial troubles.