For any homeowner, the prospect of falling home values can cause panic. Since home ownership is a major financial and personal investment, there is a natural concern that comes with any potential risk to that investment.
However, housing market activity so far doesn’t show year-over-year declines in home prices nationally — at least not yet. While some data sets show month-to-month home price declines, month-to-month data is more volatile and does not indicate major changes in the market itself.
A combination of already high home prices, high mortgage interest rates, low housing inventory, and a large amount of economic uncertainty has led to a significant decline in home price growth. Many home buyers are now exiting the purchase.
As a result, properties are sitting on the market a little longer, and sellers are dropping their asking prices more often than they did in the past two years when buyer activity was red-hot and lowering list prices was almost unheard of.
“Right now you’ve got some home sellers who are delayed thinking their prices are the same as six months ago,” says Nick Bailey, president, and CEO of Ray/Max.
To help you better understand the data, we’re explaining the different types of price drops, declines, and falls you’ll hear about, as well as what that means for home prices now and in the future.
What does falling price mean?
When you hear that home prices have dropped, it can mean one of a few different things. Explain what kind of decline price it could be:
The listed price decreases
If the home is sitting on the market and not receiving much interest, the listing agent and seller will negotiate a reduction in the home’s asking price. “If we’re not gaining traction and doing everything we can … the market will tell us what we need to do,” says Mary Anne McMahon, broker-owner of Re/Max Pos Properties in Austin, Texas. When you see more listing prices drop on a large scale, it’s a sign that a tight seller’s market is easing and potentially starting to favor buyers. Listing price drops often coincide with longer average days on the market.
Decreasing sales price growth
Home sales prices may still see year-over-year growth, but at a much slower rate than before. The median home price in the last four weeks of 2022 was $350,000, up 0.5% from the last four weeks of 2021, according to Redfin.
Month by month house prices decrease
If the median home sales price in June was lower than in May, for example, that’s considered a declining month-to-month price. However, due to the largely seasonal nature of the housing market, month-to-month numbers are often considered too volatile to indicate changing trends unless placed in a larger context.
Declining house prices
A declining home value occurs when the appraised market value is less than what the buyer paid. If the home’s market value falls below the amount owed on the property through a mortgage or other lien, the homeowner is only underwater. “If you get 40% (in home value) and your price comes down 5%, you’re still ahead,” Bailey says.
Are house prices falling?
Home sales prices are still rising year-over-year, albeit at a declining rate, and with recent month-over-month declines. The national median home sales price in November 2022, at $370,700, is 3.5% higher than in November 2021, the most recent data available, according to NAR. It was the 129th consecutive month of year-over-year increases in median home prices, according to NAR data, the longest-running streak of year-over-year price increases.
Realtor.com reports that the national median list price for active homes on the market in November was $416,000, an 11% increase from November 2021.
What may seem like a significant difference for a home in the market, however, is that “we’re not seeing homes — across, in fact, almost all markets — selling for a lot of demand,” Bailey says.
Median days on market in September also rose 15% year-on-year to 56 days – a significant change from 2021, given that many recent home buyers have scrambled to make an offer the day a property is listed on the market, but at least the number of days on market has increased since 2022’s decline. with
Looking at current market trends and looking ahead, expect more diverse results between different parts of the country.
“We don’t expect to see double-digit price declines nationally, but we are likely to see steeper declines in some markets,” Ruben Gonzalez, chief economist at national brokerage Keller Williams, wrote in an email.
Where are house prices falling?
“The areas that received the highest level of praise are the ones that are at the bottom,” says Bailey.
One example is Boise, Idaho, which has been growing at an extraordinary pace for a few years and has seen significant interest during the height of the COVID-19 pandemic. However, the last month of 2022 saw a change in the market.
Redfin reports the median sales price in the Boise market in November 2022 was $470,000, a 1.9% year-over-year decrease.
Austin, Texas, saw rapid price growth before the pandemic began, during which home prices entered warp speed. Redfin reports that the median sales price in the Austin market in November 2022 was $540,000, a 3.6% year-over-year decrease.
These price declines reflect a market price correction – a period of time in which home prices reflect where prices would have been if not for a period of rapid growth.
“The markets most vulnerable to the biggest declines are the same markets that saw the fastest spikes in prices,” says Gonzalez. “Where house prices are up 30 percent in one year, there’s plenty of room for them to come down.”
What will happen to house prices?
With so many contributing factors, there is no guarantee about what will happen in the real estate market. Prices may continue to rise at a slower rate, they may plateau for a period of time or they may decline.
The fact that many homeowners are choosing not to sell during this time—in many cases to avoid paying higher mortgage interest rates for the next home they might buy—is one of a handful of factors that keep home prices down. Relatively slow pace.
“The lack of pressure on homeowners to sell will prevent prices from falling as dramatically as they did during the Great Recession,” says Gonzalez. “Occupational sales are still at historically low levels and, so far, unemployment is also low.”
Even if prices rise, homeowners can worry less about their homes being underwater. “Home equity across the country remains high, meaning some homeowners are close to negative equity,” says Gonzalez. “We’re not in an environment where there seems to be a possibility of house fires.”
Average homeowner equity — the portion of a home’s value that a homeowner owns beyond any mortgage or other lien — saw a net gain of 15.8% year-over-year in the third quarter of 2022, according to CoreLogic’s Homeowner Equity Insights report. This increases the average homeowner’s equity by more than $34,000 over the course of a year.
This high amount of equity provides homeowners with some cushion, reducing the likelihood of short sales, foreclosures, and other distressed sales that were all common during the Great Recession. That cushion can provide time for homeowners to miss monthly mortgage payments. Fortunately, this is not the case for most homeowners right now.