Truth About Home Prices
A super common question and concern we get in the real estate industry today is: What is the truth about home prices? Are they going to decrease, increase, or stay the same? Well, there is some articles out there that are predicting a housing market crash, there is still no signs of this happening. In fact, most economists have revised their home price increases higher. The feeling can be confusing, and makes a clearer view on the real estate market much harder to see. Here is the truth about home prices, and what we can expect.
Challenges In Pricing Predictions
Part of the challenge comes from understanding what the experts are saying and predicting. They typically use wording that might not be used in your everyday conversations outside of real estate. Let us break down the differences in terms that most experts are using in the industry today.
- Appreciation is when home prices increase.
- Depreciation is when home prices decrease.
- Deceleration is when home prices continue to appreciate, but at a slower or more moderate pace.
Experts generally agree that we will see a home price deceleration, meaning that we will likely not see meteoric rises in home prices consistently. Deceleration is the word we need to be focused on in the end of the year of 2022. In 2021, we saw record breaking home price increases, followed by another year of double digit price appreciation in 2022. On average, home prices increased by 15% in 2021, and close to 10% so far in 2022. This doesn’t shed light on multiple months of 20% or higher price increases. However, we will see that further price deceleration will allow buyers some reprieve in the following months. This year, we have seen prices decelerate from the 20%’s to the mid-to-low 10%’s.
Truth About Home Prices Data
The graph below shows the latest data compiled from CoreLogic that hopefully can show the story of how home prices are decelerating, and not depreciating. P.S. for those actual buyers, we all know prices haven’t decreased this year. As the green bars show, home prices have appreciated between 18-20% year-over-year. Over the past few months, however, we have seen prices decelerate to a whopping….. 18%. This is nothing to hang your hat on in terms of helping inflation, but it is a start.
From The Experts
According to Monthly Mortgage Monitor by Black Knight:
“Annual home price growth dropped by nearly two percentage points . . . – the greatest single-month slowdown on record since at least the early 1970s. . . While June’s slowdown was record-breaking, home price growth would need to decelerate at this pace for six more months to drive annual appreciation back to 5%, a rate more in line with long-run averages.”
What this essentially means is that, while the pace of price increases is slowing, it is still increasing. Decelerated price growth is a staple to being able to control home prices in the long run. We do expect to see more price deceleration, and not any depreciation, as the overall dynamics of this housing market are still there. Lack of supply, high demand, and motivated clients will likely keep the real estate market elevated for some time. However, there is some light at the end of the tunnel for buyers. Prices will likely only increase, on average, by 3-5% next year. While this isn’t set in stone, this is what experts are predicting.