Over the last two years, the rate of home prices appreciated
at a dramatic pace. While that led to incredible equity gains for homeowners,
it’s also caused some buyers to wonder if home prices will fall. It’s important
to know the housing market isn’t a bubble about to burst, and home price growth
is supported by strong market fundamentals.
To understand why price declines are unlikely, it’s
important to explore what caused home prices to rise so much recently, and
where experts say home prices are headed. Here’s what you need to know.
Home Prices Rose Significantly in Recent Years
The graph below uses the latest data from CoreLogic to
illustrate the rise in home prices over the past year and a half. The gray bars
represent the dramatic increase in the rate of home price appreciation in 2021.
The blue bars show home prices are still rising in 2022, but not as quickly:
You might be asking: why did home prices climb so much last
year? It’s because there were more buyers than there were homes for sale. That
imbalance put upward pressure on home prices because demand was extremely high,
and supply was record low.
Where Experts Say Prices Will Go from Here
While housing inventory is increasing and buyer demand is
softening today, there’s still a shortage of homes available for sale. That’s
why the market is seeing ongoing price appreciation. Mark Fleming, Chief
Economist at First American, explains it like this:
“. . .we’re still well below normal levels of inventory
and that’s why even with the pullback in demand, we still see house prices
appreciating. While there is more inventory, it’s still not enough.”
As a result, experts are projecting a more moderate rate of
home price appreciation this year, which means home prices will continue
rising, but at a slower pace. That doesn’t mean prices are going to fall. As
Selma Hepp, Deputy Chief Economist at CoreLogic, says:
“The current home price growth rate is unsustainable, and
higher mortgage rates coupled with more inventory will lead to slower home
price growth but unlikely declines in home prices.”
In other words, even with higher mortgage rates, moderating
buyer demand, and more homes for sale, experts say home price appreciation will
slow, but prices won’t decline.
If you’re planning to buy a home, that means you shouldn’t
wait for home prices to drop to make your purchase. Instead, buying today means
you can get ahead of future price increases, and benefit from the rise in
prices in the form of home equity.
Home prices skyrocketed in recent years because there was
more demand than supply. As the market shifts, experts aren’t forecasting a
drop in prices, just a slowdown in the rate of price growth. To understand
what’s happening with home prices in our area, let’s connect today.