What Does the Future Hold for Home Prices?

An important question on everyone's mind currently is: what will become of home prices?

While some headlines discuss the continuous appreciation of prices, other sellers are reducing the price of their homes. This can feel confusing and make it difficult to see the big picture.

One challenge is that experts often use similar sounding terms, making it hard to understand what they're saying. Let's break down the differences between these terms to help clarify what's happening 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 agree that, nationally, the rate of price growth has decelerated. That implies home values are rising, just not at the breakneck speed over the past years. In 2021, data from CoreLogic tells us home prices appreciated by an average of 15% nationwide. And earlier this year, that appreciation was upward of 20%. This year, experts forecast home prices will appreciate at a decelerated pace of around 10 to 11%, on average.

The graph below uses the latest data from CoreLogic to help tell the story of how home prices are decelerating, but not depreciating so far this year.

The green bars demonstrate that home prices appreciated anywhere from 19-20% year-over-year from January to March. More recently though, the rate at which those prices are increasing has decelerated to 18%. While this means that growth is still occurring in comparison to last year, it's happening more slowly.

As the Monthly Mortgage Monitor from Black Knight explains:

“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.”

This means that home prices, while moderating, are still considerably higher than the average, and it would take a lot more deceleration to align with typical rates of home price growth. That's not quite the same as home price depreciation though.

In essence, home prices are not declining or depreciating nationally--they are just slowing down or decelerating. Although some areas that were once highly sought-after and now saturated may witness a decrease, nationwide, experts project homes will continue to appreciate. Consequently, when we consider the big picture of the entire country, none of the professionals anticipate home values will overall depreciate or fall. On the contrary; they all agree that appreciation is likely to persist.

Bottom Line

If you have questions about what’s happening with home prices in our local area, connect with The Perreault Group.