Home Prices Are Finally Falling, Will It Last Into 2023?

The United States housing market has been through the wringer these past few years. After two years of stratospheric price increases, home prices seemed to have peaked and have finally turned downward.

On The Decline

Prices will likely continue dropping, but not as much as they did during the housing bust. From 2006-2012, home prices all over the country fell by 27%. “It was different in 2008, 2009 because that drop in prices was because of a push from sellers,” said Jeff Tucker, senior economist at Zillow. “Because of foreclosures and short sales there were a lot of extremely motivated sellers who were willing to take a loss on their homes.”

The housing crash came at a time when the inventory of homes that were available was four times higher than it is right now. The current housing inventory is still significantly lower than pre-pandemic levels. Competition in the housing market has increased thanks to the lower inventory. That competition is what's keeping prices at relatively high points.

“I would be surprised to see prices anywhere drop below where they were in 2019,” said Tucker. “There was some overheating in the housing market in 2021 through this spring that pushed prices higher than what the fundamentals would support. Now they are coming down.”

How Low Can They Go?

Mortgage rates have more than doubled since the beginning of the year. The monthly principal and interest mortgage payment on an average-priced home is up around $930 from a year ago.

Buying a home is now less affordable than it has been in decades. Rising competition has pushed many prospective buyers out of the market. There might be a silver lining at the end of this, though.

Economists at Goldman Sachs predict that home prices will start declining at a rate of 5% to 10% from the peak in June. Wells Fargo also forecasted that national median single-family home prices will decline by 5.5% year-over-year by the end of 2023.

“The primary driver behind the housing market correction thus far has been sharply higher mortgage rates,” the Wells Fargo researchers wrote. “If our forecast for Fed rate cuts is realized, mortgage rates are likely to fall slightly just as cooling inflation pressures boost real income growth. A modest improvement in sales activity should then follow, which will reignite home price appreciation heading into 2024.”

Location Is Everything

At the end of the day, the rate at which housing prices decline depends entirely on where you live. Unlike the nationwide price hikes we saw during the pandemic, this cooling period will be mostly regional.

The drops are predicted to be more significant in places that had larger gains during the pandemic, such as Austin, Phoenix, and Boise. “Nationally, we might see a 5% decline from the peak,” Tucker said. “But prices will decline by more in the West and there will be a smaller decline in the Southeast.”

This article was produced and syndicated by Wealth of Geeks.

Max Marvelous has coached over 250 Millennials to help take the stress out of money. When Max is not coaching, you'll find him reading financial books, indoor cycling, or visiting local pawn shops looking for swiss-made watches.