Equity is basically the difference between how much your house is worth and how much you owe on it. Lately, the news is all over the place about home prices, making it hard to figure out what's really going on. Some folks are saying that home prices are due for a drop, but what's actually going on? Let's break down what a potential price correction could mean.

According to Danielle Hale, Chief Economist at Realtor.com, here's what she says:

“ “In stock market terms, a correction is generally referred to as a 10 to 20% drop in prices . . . We don’t have the same established definitions in the housing market.”
”

— Danielle Hale, Chief Economist at Realtor.com

In today's housing market, don't expect a sharp decline in home prices. Instead, prices are just starting to stabilize after a period of rapid growth. Essentially, they are now rising at a more moderate rate. While prices differ significantly across local markets, nationally, there is no indication of a substantial downturn.

The Real Estate Market Is Normalizing

From 2020 to 2022, there was a significant surge in home prices. This drastic rise was a result of the strong demand, low interest rates, and a limited inventory of homes for sale. However, it was evident that such rapid growth was unsustainable in the long run.

As of today, there has been a noticeable slowdown in price growth, indicating that the market is gradually moving towards a more normalized state. According to the latest information from Case-Shiller, prices remained relatively stable for a few months last year but are now experiencing a moderate increase on a national scale, albeit at a slower pace than previously shown in the graph below:

This year has seen a more balanced and healthier rate of price increase compared to the rapid growth experienced during the pandemic.

Certainly. Marco Santarelli, the Founder of Norada Real Estate Investments, has indicated that the next step for prices is still uncertain.

““Expert forecasts lean towards a moderation in home price growth over the next five years. This translates to a slower and more sustainable pace of appreciation compared to the breakneck speed witnessed in recent years, rather than a freefall in prices.”
”

— Marco Santarelli, the Founder of Norada Real Estate Investments

Increasing inventory combined with limited buyer demand, mainly due to the relatively high mortgage rates, will help alleviate some of the upward pressure on prices.

 What This Means for You

Thinking about buying a home? The recent slowdown in price growth is good news. The sharp rise in home prices during the pandemic made it difficult for many potential buyers to afford a home.

While understanding that the home you purchase will probably appreciate in value over time is important, the deceleration in price increases is helping to create a more sustainable market, according to Odeta Kushi, Deputy Chief Economist at First American.

““While housing affordability is low for potential first-time home buyers, slowing price appreciation and lower mortgage rates could help — so the dream of homeownership isn’t boarded up just yet.”
”

— Odeta Kushi, Deputy Chief Economist at First American

Bottom Line

At the national level, home prices are holding steady and most experts anticipate moderate growth in the future. However, price trends can vary significantly depending on the local market. This is where a reliable real estate agent can provide valuable insights. If you have inquiries regarding price developments in our area, feel free to get in touch.