The last ten years have witnessed a surge in housing prices. Prices have more than doubled nationwide since they peaked in the aftermath of the economic recession and the housing crash in 2008–2009. However, this extended period of significant price increases is coming to an end. In the majority of the country, prices are expected to decrease. Over the next few years, most regions will only see small drops, while those where prices rose during the good times will see greater declines.
What’s Caused the Rise In Home Prices?
According to data from the National Association of Realtors (NAR), the median sales price for an existing home was $407,600, up 14.8% from a year ago. Despite a slight slowdown recently, home prices are still rising quickly. Early in the year, sales prices were 20% higher that they had been previously. Two concurrent trends, each of which is active on a different side of the pricing equation, are what’s causing that increase. There are fewer homes available due to lesser people deciding to leave their current properties and the under-building of new homes during the previous ten years.
“I know it [double-digit home price declines] sounds really really bad, but the reality is you have to take a longer-term lens on this and have some perspective because those markets saw run-ups of 30%, 40%, 50% plus over the last year or two. So we really compressed into a year or two a decade of home price appreciation So even if our forecasts are right and prices do decline double-digits in some of these markets over the next few years, we’re only going to be resetting down to what home prices were in 2020 or early 2021,”
– Rick Palacios Jr., head of research at John Burns Real Estate Consulting
In some ways, the impending correction in housing prices may be restorative. The removal of flippers from the property market before they spread to other areas is a gain. Additionally, the Federal Reserve is increasing interest rates in an effort to slow the economy and control excruciatingly high inflation. A tiny, needed price to pay to control inflation is fewer home sales and a correction in housing prices because the housing sector of the economy is the most rate-sensitive. Uncomfortably high risks exist, of course, that the Fed may misread its rate hikes and lead to a recession and a more significant decline in home prices. If so, the distinction between a correction in housing prices and a crash may just be a formality.
According to experts, it is unlikely that costs would decrease significantly across the country anytime soon. And while the rate of home price growth may reduce, this is probably due to fewer people having the means to shop in a more expensive market. Locally, specific marketplaces may experience lower costs, but experts suggest that without a significant economic shift, a significant drop in prices overall is improbable. Millennials are in the peak years for homeownership—which has increased demand. Additionally, the rise of remote work has made it possible for more people to live farther away from their places of employment and urban areas.
The Bottom Line
Nevertheless, buying can be a wise move. Rentals are rising along with home prices, and if you buy a house with a fixed-rate mortgage, your monthly payment will remain the same as rents in the area continue to rise. If you’re anticipating a market crash, it’s unlikely that will happen in this situation, and you’ll probably have to wait a very long time. Make sure you have a team of experts to guide you through this competitive market as you go through the buying journey.
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