Think Home Prices Are Going to Plummet Any Time Soon? Think Again

Over the last two years, the rate of home prices appreciated at a dramatic pace. While that led to incredible equity gains for homeowners, it’s also caused some buyers to wonder if home prices will fall. It’s important to know the housing market isn’t a bubble about to burst, and home price growth is supported by strong market fundamentals.

To understand why price declines are unlikely, it’s important to explore what caused home prices to rise so much recently, and where experts say home prices are headed. Here’s what you need to know.

Home Prices Rose Significantly in Recent Years

The graph below uses the latest data from CoreLogic to illustrate the rise in home prices over the past year and a half. The gray bars represent the dramatic increase in the rate of home price appreciation in 2021. The blue bars show home prices are still rising in 2022, but not as quickly:

You might be asking: why did home prices climb so much last year? It’s because there were more buyers than there were homes for sale. That imbalance put upward pressure on home prices because demand was extremely high, and supply was record low.

According to the Santa Barbara Association of Realtors®… In a recent analysis, local prices appear to be stabilizing compared to earlier this year. Home prices are no longer escalating upwards with sales going into massive overbid, anywhere from $100,000-$600,000 like they did earlier this year. In fact, today, home sellers who stubbornly follow this trend and list their home with an inflated value expecting to go into a multiple offer situation, are experiencing a rude awakening.

With the buying climate today, homes like this will have longer Days on the Market. Buyers, cautious with rising interest rates, aren’t as eager to scoop up properties. As a result, when a seller of an aggressively priced home does receive an offer, it will likely be less than the asking price. If the home receives no offers, the seller must consider a price adjustment downward, something we are seeing a little more of in our local market.

While we are only seeing a glimmer of this new phenomenon, it is a marked contrast to the Santa Barbara real estate market we’ve known for the last two years. Today it’s more important that your real estate professional be savvy with their pricing strategy.

Where Experts Say Prices Will Go from Here

While housing inventory is increasing and buyer demand is softening today, there’s still a shortage of homes available for sale. That’s why the market is seeing ongoing price appreciation. Mark Fleming, Chief Economist at First American, explains it like this:

“we’re still well below normal levels of inventory and that’s why even with the pullback in demand, we still see house prices appreciating. While there is more inventory, it’s still not enough.”

As a result, experts are projecting a more moderate rate of home price appreciation this year, which means home prices will continue rising, but at a slower pace. That doesn’t mean prices are going to fall. As Selma Hepp, Deputy Chief Economist at CoreLogic, says:

“The current home price growth rate is unsustainable, and higher mortgage rates coupled with more inventory will lead to slower home price growth but unlikely declines in home prices.”

In other words, even with higher mortgage rates, moderating buyer demand, and more homes for sale, experts say home price appreciation will slow, but prices won’t decline.

If you’re planning to buy a home, that means you shouldn’t wait for home prices to drop to make your purchase. Instead, buying today means you can get ahead of future price increases, and benefit from the rise in prices in the form of home equity.

The Bottom Line

Home prices skyrocketed in recent years because there was more demand than supply. As the market shifts, experts aren’t forecasting a drop in prices, just a slowdown in the rate of price growth. To understand what’s happening with home prices in our area, and why, let’s connect today.

Call me or text me for a confidential, no-obligation consultation. For text inquiries, please use the keywords, “real estate inquiry.”

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Lori’s reputation for exceptional service, discretion, and uncompromising integrity is at the heart of every transaction. With experience cultivated from almost 20 years of real estate transactions, both as an agent and investor, Lori brings her passion, market knowledge, and unmatched work ethic to each transaction.