Are Home Prices Going To Come Down?

Today’s headlines and news stories about home prices can be perplexing, leaving many wondering about the real situation. Some suggest that home prices are on the verge of a correction, but what does this really mean? Let's break it down.

Danielle Hale, Chief Economist at Realtor.com, explains:

“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.”

However, the housing market lacks established definitions for this term. In the current housing market context, a correction does not imply a dramatic fall in home prices. Rather, it indicates that prices, which have been rapidly increasing over the past few years, are now experiencing a more moderate growth rate. While prices vary significantly by local market, it's important to note that a significant drop is not occurring at a national level.

The Real Estate Market Is Normalizing

The period from 2020 to 2022 witnessed a remarkable surge in home prices, driven by high demand, low interest rates, and a shortage of homes for sale. However, such aggressive growth was not sustainable in the long term. Presently, price growth has begun to decelerate, signaling a normalization of the market. Recent data from Case-Shiller shows that prices are rising at a national level, albeit not as rapidly as before. 

(see graph below):

Looking Ahead Expert forecasts lean towards a moderation in home price growth over the next five years, indicating a slower and more sustainable pace of appreciation compared to the rapid growth witnessed in recent years, rather than a freefall in prices. This shift is attributed to increasing inventory and limited buyer demand due to relatively high mortgage rates, which will help ease some of the upward pressure on prices.

What This Means for You For prospective homebuyers, the deceleration in price growth is welcome news, offering hope for improved affordability. While housing affordability remains a challenge for potential first-time homebuyers, the slowdown in price appreciation and lower mortgage rates could provide relief, ensuring that the dream of homeownership remains within reach.

Bottom Line

At the national level, home prices are not declining, and most experts anticipate moderate growth in the future. However, prices vary significantly by local market. This is where a trusted real estate agent can provide valuable insight. If you have questions about price trends in your area, don't hesitate to reach out.