What Does the Rest of the Year Hold for Home Prices?

Whether you’re a potential homebuyer, seller, or both, you probably want to know: will home prices fall this year? Let’s break down what’s happening with home prices, where experts say they’re headed, and why this matters for your homeownership goals.

Last Year’s Rapid Home Price Growth Wasn’t the Norm

In 2021, home prices appreciated quickly. One reason why is that record-low mortgage rates motivated more buyers to enter the market. As a result, there were more people looking to make a purchase than there were homes available for sale. That led to competitive bidding wars which drove prices up. CoreLogic helps explain how unusual last year’s appreciation was:

“Price appreciation averaged 15% for the full year of 2021, up from the 2020 full year average of 6%.”

In other words, the pace of appreciation in 2021 far surpassed the 6% the market saw in 2020. And even that appreciation was greater than the pre-pandemic norm which was typically around 3.8%. This goes to show, 2021 was an anomaly in the housing market spurred by more buyers than homes for sale.

Home Price Appreciation Moderates Today

This year, home price appreciation is slowing (or decelerating) from the feverish pace the market saw over the past two years. According to the latest forecasts, experts say on average, nationwide, prices will still appreciate by roughly 10% in 2022 (see graph below):



Why do all of these experts agree prices will continue to rise? It’s simple. Even though housing supply is growing today, it’s still low overall thanks to several factors, including a long period of underbuilding homes. And experts say that’s going to help keep upward pressure on home prices this year. Additionally, since mortgage rates are higher this year than they were last year, buyer demand has slowed.

As the market undergoes this change, it’s true price appreciation this year won’t match the feverish pace in 2021. But the rapid appreciation the market saw last year wasn’t sustainable anyway.

What Does That Mean for You?

Today, the market is beginning to move back toward pre-pandemic levels. But even the forecast for 10% home price growth in 2022 is well beyond the 3.8% that’s more typical for a normal market.

So, despite what you may have heard, experts say home prices won’t fall in most markets. They’ll just appreciate more moderately.

If you’re worried the house you’re trying to sell or the home you want to buy will decrease in value, you should know experts aren’t calling for depreciation in most markets, just deceleration. That means your home should still grow in value, just not as fast as it did last year.

Bottom Line

If you’re thinking of making a move, you shouldn’t wait for prices to fall. Experts say nationally, prices will continue to appreciate this year, just at a more moderate pace. When you’re ready to begin the process of buying or selling, let’s connect so you have a local market expert on your side each step of the way.

Looking to Buy, Sell, or Invest? Contact:

David Demangos - eXp Realty
Cell: 858.232.8410 | Realtor® DRE# 01905183
www.AwesomeSanDiegoRealEstate.com
We Go to Extremes to Fulfill Real Estate Dreams!

San Diego Real Estate Expert | Global Property Specialist
Certified Luxury Marketing Specialist | CLHMS Million Dollar Guild Agent
Green Specialist | Certified International Property Specialist
2016, 2017, 2018,2019,2020,& 2021 Recognition of Excellence Award Winner SDAR

What’s Causing Ongoing Home Price Appreciation?

If you’re thinking about making a move, you probably want to know what’s going to happen to home prices for the rest of the year. While experts say price growth will moderate due to the shifting market, ongoing appreciation is expected. That means home prices won’t fall. Here’s a look at two key reasons experts forecast continued price growth: supply and demand.

While Growing, Housing Supply Is Still Low

Even though inventory is increasing this year as the market moderates, supply is still low. The graph below helps tell the story of why there still aren’t enough homes on the market today. It uses data from the Census to show the number of single-family homes that were built in this country going all the way back to the 1970s.



The blue bars represent the years leading up to the housing crisis in 2008. As the graph shows, right before the crash, homebuilding increased significantly. That’s because buyer demand was so high due to loose lending standards that enabled more people to qualify for a home loan.

The resulting oversupply of homes for sale led to prices dropping during the crash and some builders leaving the industry or closing their businesses – and that led to a long period of underbuilding of new homes. And even as more new homes are constructed this year and in the years ahead, this isn’t something that can be resolved overnight. It’ll take time to build enough homes to meet the deficit of underbuilding that took place over the past 14 years.

Millennials Will Create Sustained Buyer Demand Moving Forward

The frenzy the market saw during the pandemic is because there was more demand than homes for sale. That drove home prices up as buyers competed with one another for available homes. And while buyer demand has moderated today in response to higher mortgage rates, data tells us demand will continue to be driven by the large generation of millennials aging into their peak homebuying years (see graph below):



Odeta Kushi, Deputy Chief Economist at First American, explains:

“. . . millennials continue to transition to their prime home-buying age and will remain the driving force in potential homeownership demand in the years ahead.”

That combination of millennial demand and low housing supply continues to put upward pressure on home prices. As Bankrate says:

“After all, supplies of homes for sale remain near record lows. And while a jump in mortgage rates has dampened demand somewhat, demand still outpaces supply, thanks to a combination of little new construction and strong household formation by large numbers of millennials.”

What This Means for Home Prices

If you’re worried home values will fall, rest assured that experts forecast ongoing home price appreciation thanks to the lingering imbalance of supply and demand. That means home prices won’t decline.

Bottom Line

Based on today’s factors driving supply and demand, experts project home price appreciation will continue. It’ll just happen at a more moderate pace as the housing market continues its shift back toward pre-pandemic levels.

Looking to Buy, Sell, or Invest? Contact:

David Demangos - eXp Realty
Cell: 858.232.8410 | Realtor® DRE# 01905183
www.AwesomeSanDiegoRealEstate.com
We Go to Extremes to Fulfill Real Estate Dreams!

San Diego Real Estate Expert | Global Property Specialist
Certified Luxury Marketing Specialist | CLHMS Million Dollar Guild Agent
Green Specialist | Certified International Property Specialist
2016, 2017, 2018,2019,2020,& 2021 Recognition of Excellence Award Winner SDAR

Home Price Deceleration Doesn’t Mean Home Price Depreciation

Experts in the real estate industry use a number of terms when they talk about what’s happening with home prices. And some of those words sound a bit similar but mean very different things. To help clarify what’s happening with home prices and where experts say they’re going, 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.

Where Home Prices Have Been in Recent Years

For starters, you’ve probably heard home prices have skyrocketed over the past two years, but homes were actually appreciating long before that. You might be surprised to learn that home prices have climbed for 122 consecutive months (see graph below):



As the graph shows, houses have gained value consistently over the past 10 consecutive years. But since 2020, the increase has been more dramatic as home price growth accelerated.

So why did home prices climb so much? It’s because there were more buyers than there were homes for sale. That imbalance put upward pressure on home prices because demand was high and supply was low.

Where Experts Say Home Prices Are Going

While this is helpful context, if you’re a buyer or seller in today’s market, you probably 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

Experts forecast price deceleration, not depreciation. That means home prices will continue to rise, just at a slower pace. Let’s connect so you can get the full picture of what’s happening with home prices in our local market and to discuss your buying and selling goals.

Looking to Buy, Sell, or Invest? Contact:

David Demangos - eXp Realty
Cell: 858.232.8410 | Realtor® DRE# 01905183
www.AwesomeSanDiegoRealEstate.com
We Go to Extremes to Fulfill Real Estate Dreams!

San Diego Real Estate Expert | Global Property Specialist
Certified Luxury Marketing Specialist | CLHMS Million Dollar Guild Agent
Green Specialist | Certified International Property Specialist
2016, 2017, 2018,2019,2020,& 2021 Recognition of Excellence Award Winner SDAR