Home Price Deceleration Doesn’t Mean Home Price Depreciation

Home Price Deceleration Doesn’t Mean Home Price Depreciation

Real estate industry experts use a number of terms when they talk about what’s happening with home prices. While some of those words sound a bit similar, they mean very different things. To help clarify, here’s a look at a few terms you may hear:

  • Appreciation is when home prices increase.

  • Depreciation is when home prices decrease.

  • Deceleration is when home prices continue to appreciate, but at a slower pace.

What Headlines and Social Media Tell You

You’ve seen the headlines on news outlets and on social media stating home prices are falling. That is not necessarily true. We’ve seen a lot of homes be priced at comparable sales data from the crazy spring, and with higher interest rates making the homes less affordable, many have had to reduce price. Overall, home prices on active homes are indeed falling, but the value of homes is not.

Where Home Prices Have Been in Recent Years

We have all witnessed home prices skyrocketing over the past two years (many areas as much or higher than 20% year over year), but homes were actually appreciating long before that. It may come as a surprise to learn that home prices have climbed for 122 consecutive months (see graph below):

As the graph shows, we have seen home value gains consistently over the past 10 consecutive years. Since 2020, the increase has been quite dramatic as home price growth accelerated.

Home prices climbed so much as there were more buyers than there were homes for sale, creating a major inventory shortage. It’s as simple as supply and demand, and that imbalance put upward pressure on home prices.

Where Experts Say Home Prices Are Going

Buyers and sellers both want to know what’s going to happen with home prices moving forward. Will they continue that same growth path or will home prices fall?

Experts are forecasting ongoing appreciation, just at a decelerated pace. In other words, prices will keep climbing, just not as fast as they have been. The graph below shows home price forecasts from seven industry leaders. None are calling for prices to fall (see graph below):

Mark Fleming, Chief Economist at First American, identifies a key reason why home prices won’t depreciate or drop:

“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.”

And although housing supply is starting to tick up, it’s not enough to make home prices decline because there’s still a gap between the number of homes available for sale and the volume of buyers looking to make a purchase.

Terry Loebs, Founder of the research firm Pulsenomics, notes that most real estate experts and economists anticipate home prices will continue rising. As he puts it:

“With home values at record-high levels and a vast majority of experts projecting additional price increases this year and beyond, home prices and expectations remain buoyant.”

Bottom Line

While experts forecast price deceleration, not depreciation, home prices will continue to rise even if at a slower pace. I would be happy to connect and dissucc the full picture of what’s happening with home prices in our local market and to discuss your buying and selling goals.

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