Will Home Prices Drop Anytime Soon?
Today's headlines about home prices can be confusing and make it hard to grasp the current market trends. Some reports suggest that home prices might be due for a correction, but what does that really mean? It’s useful to start by understanding what a correction entails.
Danielle Hale, Chief Economist at Realtor.com, explains:
“In the stock market, a correction typically refers to a 10 to 20% decline in prices. However, the housing market doesn’t have a universally accepted definition for a correction.”
In today’s housing market, a correction doesn’t imply a dramatic fall in home prices. Instead, it means that after a period of rapid increases, prices are starting to stabilize and grow at a more moderate rate. While local markets can vary, a significant national decline is not on the horizon.
The Real Estate Market Is Stabilizing
From 2020 to 2022, home prices soared due to high demand, low interest rates, and a limited supply of homes. Such rapid growth was unsustainable.
Currently, price growth is slowing, indicating that the market is returning to a more normal pace. Recent data from Case-Shiller shows that after a period of stagnation last year, home prices are rising again nationally—just at a slower rate than before (see graph below).
The big takeaway? So far this year, there’s been a much healthier pace of price growth compared to the pandemic.
Of course, that’s what’s happening now, but you may be wondering what’s next for prices. Marco Santarelli, the Founder of Norada Real Estate Investments, says:
“Expert forecasts lean towards a moderation in home price growth over the next five years. This translates to a slower and more sustainable pace of appreciation compared to the breakneck speed witnessed in recent years, rather than a freefall in prices.”
It’s all about supply and demand. Increasing inventory plus limited buyer demand, due to relatively high mortgage rates, will continue to ease some of the upward pressure on prices.
What This Means for You
If you’re thinking about buying a home, slowing price growth is welcome news. Skyrocketing home prices during the pandemic left many would-be homebuyers feeling priced-out.
While it’s still a good thing to know the value of the home you buy will likely continue to go up once you own it, slowing price gains are making things feel more manageable. Odeta Kushi, Deputy Chief Economist at First American, says:
“While housing affordability is low for potential first-time home buyers, slowing price appreciation and lower mortgage rates could help — so the dream of homeownership isn’t boarded up just yet.”
Bottom Line
At the national level, home prices are not going down. And most experts forecast they’ll continue growing moderately moving forward. But prices vary a lot by local market. That’s where a trusted real estate agent comes into play. If you have questions about what’s happening with prices in your area, reach out to an agent.
Disclaimer: The information provided in this blog post is based on the latest available data at the time of writing, which is subject to change. It is intended for informational purposes only and should not be considered as financial or investment advice.