Are Home Prices Going To Come Down?

Are Home Prices Going To Come Down?

Today’s headlines and news stories about home prices can be confusing, making it difficult to understand what’s really happening. Some suggest that home prices are heading for a correction, but what do the facts say? To clarify, it helps to start by understanding what a correction actually means.

Here’s what Danielle Hale, Chief Economist at Realtor.com, says:

 “In stock market terms, a correction is generally referred to as a 10 to 20% drop in prices . . . We don't have the same established definitions in the housing market.”

In the context of today’s housing market, it doesn’t mean home prices are going to fall dramatically. It only means prices, which have been increasing rapidly over the last couple years, are normalizing a bit. In other words, they’re now growing at a slower pace. Prices vary a lot by local market, but rest assured, a big drop off isn’t what’s happening at a national level.

The Real Estate Market Is Normalizing

From 2020 to 2022, home prices skyrocketed due to high demand, low interest rates, and a shortage of homes for sale. However, that kind of aggressive growth couldn’t continue forever.

Today, price growth has started to slow down, indicating that the market is beginning to normalize. The most recent data from Case-Shiller shows that after being relatively flat for a couple of months last year, prices are rising again at a national level, though not as quickly as 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.

While this is the current trend, you might 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, combined with 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 reassuring to know that the value of the home you buy will likely continue to increase over time, slower price gains are making the market 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 to grow moderately moving forward. However, prices can vary significantly 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 our area, reach out.