What Needs to Happen for Home Prices to Drop?

You may be wondering if home prices are going to crash. And believe it or not, some people might even be hoping this happens so they can finally purchase a afford home. But experts agree that’s not what’s in the cards – and here’s why.

There are more people who want to buy a home than there are homes available to purchase. That’s what drives prices up.

Let’s break this down and explore why, on a national level, home prices aren’t expected to drop anytime soon.

Prices Depend on Supply and Demand

The housing market operates like any other market: when demand is high and supply is limited, prices increase.

The U.S. is currently experiencing a housing shortfall of several million homes. This significant gap between the number of buyers (demand) and available homes (supply) is the primary reason home prices remain elevated. As David Childers, President of Keeping Current Matters (KCM), explains:

“The main driving force on pricing is the limited amount of inventory in most markets across the country. That issue is not going to be solved overnight or in the next twelve months.”

How Did We Get Here?

For over 15 years, homebuilders haven’t kept up with buyer demand. Following the 2008 housing crisis, construction slowed dramatically and has only recently begun to recover. This longstanding shortage of new homes continues to weigh heavily on the market. (See graph below for reference.)

Despite an increase in new construction in recent years, builders are still playing catch-up. According to AmericanProgress.org, they’re not keeping pace with today’s demand, let alone addressing the years of underbuilding.

As long as the housing shortage persists, home prices are likely to remain stable or continue climbing in most markets.

What About Next Year?

Most experts agree that while home prices will likely rise again next year, the rate of growth will slow to a more sustainable and balanced pace (see graph below).

It’s essential to remember that home prices can differ significantly from one market to another. National trends may not fully capture what’s happening in your local area. If your market has more available inventory, price growth might slow or even see a slight decline. However, in areas where inventory remains limited, prices are likely to keep rising – a trend seen in much of the country. This is why partnering with a local real estate expert is so important. They can provide insight into your specific market and help you understand the factors influencing home prices where you live.

Bottom Line

The key to understanding what it would take for prices to decrease lies in supply and demand. With inventory remaining tight in most areas, home prices are expected to stay stable or continue to rise. For a clearer picture of what’s happening with home prices in your area, reach out to a local real estate expert. They can provide valuable insights into your market and help you create a plan tailored to your needs.