Future Of Home Prices

There is a growing sentiment around the real estate market that prices will have to fall because of higher mortgage rates. However, there is some strong data showing that this will likely not be the case, at least for the time being. For those who are debating on buying, selling, or both, the question of where the future of home prices will be is important to you. There are many different aspects that go into the future of home prices, so let us go over a few. Not only do home prices matter going forward for potential clients, but they also matter for the overall economy. Here is how the future of home prices impacts your homeownership journey.

What’s The Deal With Home Prices?

Home prices increasing have been one of the most consistent aspects of the overall economy in the United States for years. In fact, home prices have seen 121 consecutive months of year-over-year increases. This means that home prices have increased month-to-month over the course of a year for over 10 years now. Not even the pandemic could slow down the increases we have seen in housing costs. According to CoreLogic:

“Price appreciation averaged 15% for the full year of 2021, up from the 2020 full year average of 6%.”

But you may be stuck asking yourself, how and why are home prices climbing so much? Well, the answer is simpler than you may have thought. It is simply based on a supply and demand factor. Over the past few years, we have continuously seen the demand for housing tick up, reaching a record high in 2021. While the trend recently has been because of the record-low mortgage rates, it wasn’t always that way. The imbalance between buyers and sellers will likely slow in the coming months, as the Federal Reserve moves to tamp out decades high inflation. However, there will remain an upward pressure on home prices because real estate remains a safe-haven asset that protects from inflation.

Where Is The Future Of Home Prices Going?

But just because there is a supply problem, what does that actually mean for home prices? Well, unfortunately for buyers, and fortunately for sellers, home prices will likely continue higher for 2022, 2023, 2024, and 2025. While these projections may change as we gain more clarity over the course of action from the Federal Reserve. The housing market is not set to decline anytime soon, based on the current themes of the inventory being low and buyers remaining active.

While most experts are beginning to forecast more appropriate price appreciation, their projections are still pushing upwards. Home price appreciation looks to remain strong through 2022, even with mortgage rates hitting over 5%. Mortgage rates are their highest they have been in over a decade, and that trend will likely continue. Waiting to buy or sell could cost you thousands in this environment. According to First American:

“While house price growth is expected to moderate from the rapid pace of 2021, strong home buyer demand against a backdrop of historically tight inventory of homes for sale will likely keep appreciation positive in the coming year.”

What This Means For Movers?

The most impactful takeaway from these expert projections are how they are actually projecting. Not one major housing economist or industry forecasters are projecting a downfall in housing prices. In fact, many are projecting strong housing price increases for the next 3-5 years. While they are projecting increases in the following years, they are more modest increases than before. For homeowners thinking about selling, the higher the price appreciation your market has seen, the more equity you have gained. But, just because you gained this money on paper does not mean it is necessarily the best idea to move. In fact, because your home price increased, that means surrounding homes increased in price as well. That will make moving more expensive. Not to mention just how much higher your mortgage rate could be after moving.

If you will be a buyer after selling, or a buyer in general, waiting for prices to fall is not the best idea. Even with home price appreciation expected to only be around 3-5% in the coming years, that still adds up. 3-5% of a $300,000 home ends up adding $9-15,000 onto the price of the home each year. Waiting to buy will only cost you more in the long run due to the increase in home prices and mortgage rates. Freddie Mac said this about waiting to move:

“If you’re thinking about waiting until next year and that maybe rates are higher, but you’ll get a deal on prices – well that’s risky. It may be more advantageous to purchase this year relative to waiting until 2023 at this time.”