Will Home Prices Drop Soon?

Today's headlines and news stories about home prices are confusing, making it difficult to understand what's truly going on. Some predict a correction in home prices, but what do the facts reveal? To understand this, it's useful to first define what a correction means.

Here’s a statement from Danielle Hale, Chief Economist at Realtor.com:

"In stock market terms, a correction typically refers to a 10 to 20% decrease in prices... We don't have such well-defined benchmarks in the housing market."

In today’s housing market, this doesn’t mean home prices will fall dramatically. It simply indicates that prices, which have been rising rapidly over the past couple of years, are starting to stabilize. In other words, they’re now growing at a slower rate. While prices can vary significantly by local market, rest assured that a significant drop isn’t occurring on a national level.

The Housing Market Is Stabilizing

Between 2020 and 2022, home prices surged due to high demand, low interest rates, and a shortage of available homes. However, such rapid growth was unsustainable in the long run.

Currently, price growth has begun to decelerate, indicating that the market is starting to normalize. Recent data from Case-Shiller shows that, after remaining relatively flat for a few months last year, prices are rising on a national level—though not as rapidly as before (see graph below):

The key takeaway? This year, price growth has been at a much healthier pace compared to the pandemic period.

Of course, that's the current situation, but you might be curious about the future of prices. Marco Santarelli, Founder of Norada Real Estate Investments, says:

"Experts predict a slowdown in home price growth over the next five years. This means a more gradual and sustainable pace of appreciation compared to the rapid increases seen in recent years, rather than a drastic decline in prices."

It all comes down to supply and demand. Rising inventory combined with limited buyer demand, due to relatively high mortgage rates, will help reduce some of the upward pressure on prices.

What This Means for You

If you’re considering buying a home, slowing price growth is good news. The rapid increase in home prices during the pandemic left many prospective buyers feeling priced out.

Although it’s reassuring to know that the value of the home you purchase will likely keep rising, slowing price gains are making the market feel more manageable. Odeta Kushi, Deputy Chief Economist at First American, says:

"Although housing affordability remains a challenge for potential first-time buyers, slowing price appreciation and lower mortgage rates could provide some relief—meaning the dream of homeownership is still within reach."

Bottom Line

On a national scale, home prices aren’t expected to decline, and most experts predict they will continue to grow at a moderate pace. However, prices can vary significantly by local market. This is where a reliable real estate agent can be invaluable. If you have questions about price trends in your area, don’t hesitate to contact an agent.