Home Price Deceleration

Real estate industry experts use a wide variety of numbers or terms when they try to explain what is happening in the housing market. These terms are used in many industries and situations similar to the way they are used to talk about housing. Below we will discuss what some of these terms mean and how to apply them to the current real estate landscape. A term you will likely hear over the following months as mortgage rates soar to decade highs is home price deceleration. Here is why home price deceleration should not be a scary term to hear as a homeowner.

Recent Home Prices

Some of the most common phrases that have been used by experts recently are home price appreciation, depreciation, and deceleration. While most people can probably assume what these phrases mean towards real estate, let us go ahead and define them. When talking about home price appreciation, it is genuinely an easy term to define. When you hear price appreciation, the prices of homes are increasing. Depreciation is similar, but the exact opposite of prices going up. Finally, deceleration, which is what you will likely hear most in coming months, means the rate at which home prices increase is slowing. Home price deceleration does not mean that home prices are depreciating, which is something that needs to be made clear. When price deceleration happens, we tend to see the market return to modest gains in home prices, instead of historical returns.

Prices of homes have skyrocketed over the past few years, with an eventual end in sight. Most people, real estate related or everyday people, have heard about the increase in housing prices. Homes have actually been increasing rapidly going in to the pandemic. For people who do not follow real estate closely, we have seen 122 consecutive months of price growth. Ever since the end of the housing crisis in 2012, we have seen consecutive months of home price appreciation. While the returns are typically more modest, there has still been consistent gains.

Displayed in the graph above, you can see that houses have gained value over the past 10 years consecutively. Since 2020, the increase has been historical. Typically home prices gain 3-5% a year, however, over the pandemic home prices increased by up to 21% year over year. So, this might lead you to wonder why home prices climbed so much so quickly. Well  the answer is more complex than most people give credit for. However, a general assumption was because of such high demand based on low cost of borrowing, coupled with record low inventory.

Future Of Home Price Deceleration

Home prices will likely still increase until a full-blown recession is here. Most people do not know where home prices are going, and the internet is telling people incorrect facts using a scare tactic. When everyone is predicting a bubble or a crash, it is hard to justify that it is actually a “bubble.” Experts tend to think home prices will actually continue to increase, while at slower rates.

Experts are predicting ongoing appreciation, just at a much slower pace. In layman terms, prices will keep rising across the market, just not at 20%. The graph below shows prices home price forecasts from the industry experts, and none are predicting a price collapse or even slight decline. Real estate continues to be the best investment and if prices are continue upwards, nothing will change.

Mark Fleming, chief economist at First American says there is a key reason why home prices won’t deprecate or drop. He said this about home prices:

“In today’s housing market, demand for homes continues to outpace supply, which is keeping the pressure on house prices, so don’t expect house prices to decline.”