Are Home Prices Going To Come Down?

Are Home Prices Going To Come Down?

Today’s headlines about home prices can be confusing, making it difficult to understand what’s really happening. While some claim that home prices are heading for a correction, it’s important to examine the facts. Let’s 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 surged dramatically due to high demand, low interest rates, and a limited supply of homes for sale. However, such rapid growth was unsustainable. 

Now, price growth is starting to slow down, indicating that the market is beginning to normalize. Recent data from Case-Shiller shows that, after remaining relatively flat for a few months last year, prices are rising at a national level, though not as quickly as before (see graph below):

The big takeaway? This year has seen a much healthier pace of price growth compared to the pandemic years.

While that reflects the current situation, you might be curious about the future of home 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. As inventory increases and buyer demand remains limited due to relatively high mortgage rates, the upward pressure on prices will continue to ease.

 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 appreciate, 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 declining. Most experts predict that prices will continue to grow at a moderate pace. However, prices can vary significantly by local market. That’s where a trusted real estate agent becomes invaluable. If you have questions about what’s happening with prices in our area, reach out.