Zillow Forecast: 309 US Housing Markets to See Price Drops — Who Wins and Who Loses

For investors and portfolio managers:

• Reassess geographic concentration risk. Portfolios concentrated in pandemic-era boom metros face valuation pressure and liquidity risk.
• Look for markets with job-led demand growth rather than fad migration patterns. Micron in Central New York is an example of employment-led demand that supports long-term rental and resale values.
• Factor in carrying costs: insurance, higher vacancy risk and longer listing times reduce net returns.

Regional drivers and structural risks

Understanding why different metros are moving in opposite directions helps with risk assessment.

Key drivers of decline:

• Overbuilding during 2020–2022 produced inventory in markets where demand has softened.
• Mortgage rates remain high relative to the recent low-rate era, cutting buyer affordability and reducing pool of qualified purchasers.
• Insurance costs climbed, especially in catastrophe-prone states; Louisiana’s $10,964 average premium is a stark example.
• Climate exposure is translating into real estate risk: repeated flooding and storm risk affect both livability and insurability.

Key drivers of growth in smaller metros:

• Local economic catalysts: semiconductor plants, manufacturing investment and large employer expansions create sustained demand for housing.
• Relative affordability: buyers priced out of major metros are shifting to second-tier cities where they can afford more square footage and better yield on rental properties.
• Migration flows within regions: buyers from expensive suburbs are pushing into nearby affordable manufacturing hubs.

Risks to the rising markets

These growth stories have risks too. Job announcements can underdeliver, investment timelines can slip and new-employee estimates can be optimistic. For example, building a semiconductor megafab requires years of development and skilled labor pipelines. If immigration of skilled workers or supplier networks lags, housing demand could disappoint.

Practical strategies: how to navigate the split market

Here are specific actions for different players, based on current data.

Buyers with a two- to five-year horizon:

• Prioritize affordability-adjusted neighborhoods where monthly costs are sustainable even if insurance increases. Use a total cost model that includes insurance and taxes.
• In markets with high seller surplus, submit offers with shorter contingencies and proof of funds to stand out, but keep negotiation on price and closing credits.

Buyers seeking rental yield or long-term appreciation:

• Target metros with clear employment growth drivers. Verify employer timelines, local supply pipelines and historic absorption rates.
• Run stress tests on rental cashflow that include vacancy spikes and higher maintenance and insurance.

Sellers in weak markets:

• Price to realistic comps, not peak-era values. Be prepared to supply repair and insurance documentation early.
• Consider leaseback or rent-to-own structures to widen buyer pool when demand is slow.

Investors reallocating portfolios:

• Trim exposure in markets with sustained oversupply and climate risk.
• Rebalance toward affordable metros with verified job growth but keep position sizes conservative until demand is proven.

What lenders and insurers are doing — and why it matters

The Zillow findings are affecting underwriting and insurance practices. Lenders are scrutinizing debt-to-income ratios with insurance premiums rising; in Louisiana, the collapse of 30–40% of mortgage transactions over insurance costs indicates how underwriting rules tighten when non-mortgage housing costs spike. Insurers are pulling back from high-risk coastal and flood-prone areas, which reduces coverage availability and raises premiums for remaining policyholders.

That tightening feeds back into the housing market in two ways:

• Potential buyers may be priced out by the total monthly housing cost even if they qualify for the mortgage principal.
• Sales can fail late in the process when insurance quotes arrive, increasing transaction risk and cost for both buyers and sellers.

How to read Zillow’s forecast — limitations and uses

No forecast is perfect. Zillow’s model uses a range of local indicators and market activity to predict short-term price movement, but it cannot foresee policy changes (like expanded flood insurance subsidies), large swings in mortgage rates, or sudden corporate moves. Use it as a directional tool for regional risk allocation rather than a deterministic price guarantee.

That said, the scale of the divergence is meaningful: 309 metros projected to decline is a large share of the 894 watched. The data point to one simple reality — housing markets are more local now than national, and savvy actors need to be hyper-local in their research.

Frequently Asked Questions

Q: How many US metros does Zillow track and how many are forecast to fall?

A: Zillow tracks 894 metro housing markets. Of those, 309 are forecast to see price declines, 14 to hold flat, and 572 to rise through March 2027.

Q: Why is Austin expected to keep falling?

A: Austin overbuilt during the pandemic-era boom. Prices peaked, then corrected sharply. Zillow reports Austin has lost roughly 24% from its 2022 peak, is showing 128% more sellers than buyers, and average days on market exceed 90 days. These factors indicate persistent supply-demand imbalance.

Q: Are Louisiana house price falls driven only by overbuilding?

A: No. The Louisiana declines are driven by a combo of overbuilding in some places, extreme weather and rapidly rising insurance costs. The average homeowner’s insurance premium of $10,964 in 2024 and the fact that 30–40% of mortgage transactions are collapsing over insurance costs are major contributors.

Q: Which small cities look most promising and why?

A: Zillow highlights Syracuse (+5.0%), Rockford (+4.5%), Atlantic City (+4.5%), Rochester (+4.0%), and Utica (+3.5%). The common factors are affordability and local economic catalysts; Syracuse’s case is tied to Micron’s planned megafab and the jobs it is expected to bring.

Final takeaways for investors and homebuyers

Zillow’s forecast is a reminder that national averages matter less than local fundamentals. If you own or plan to buy property in markets that boomed during COVID — especially in the Sun Belt and Gulf Coast — you need to re-evaluate exposure to insurance costs, flood risk and persistent oversupply. If you’re considering growth opportunities in the Midwest or upstate New York, verify employer timelines and absorption capacity before committing.

A concrete example: Zillow values a typical Austin home at about $508,500; a 4.6% further decline in the forecast would erase more than $23,000 in value. That is the kind of number that should change negotiation strategies and portfolio allocations today.