Are Home Prices Going To Come Down?

Todays headlines and news stories about home prices are confusing and make it tough to know whats really happening. Some say home prices are heading for a correction, but what do the facts say? Well, it helps to start by looking at what a correction means.

Heres 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 todays housing market, it doesnt 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, theyre now growing at a slower pace. Prices vary a lot by local market, but rest assured, a big drop off isnt whats happening at a national level.

The Real Estate Market Is Normalizing

From 2020 to 2022, home prices skyrocketed. That rapid increase was due to high demand, low interest rates, and a shortage of homes for sale. But, that kind of aggressive growth couldnt continue forever.

Today, price growth has started to slow down, which is a sign the market is beginning to normalize. The most recent data from Case-Shiller shows that after being basically flat for a couple of months last year, prices are going up at a national level just not as quickly as before (see graph below):

The big takeaway? So far this year, theres been a much healthier pace of price growth compared to the pandemic.

Of course, thats whats happening now, but you may be wondering whats 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.

Its 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 youre 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 its 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 theyll continue growing moderately moving forward. But prices vary a lot by local market. Thats where a trusted real estate agent comes into play. If you have questions about whats happening with prices in your area, reach out to an agent.