You might be wondering if home prices are going to drop, and some may even be hoping for a price crash to make homes more affordable. However, experts agree that this isn’t likely to happen – here’s why.
There are more potential homebuyers than available properties, which is what drives prices higher.
Let’s break this down and take a closer look at why, on a national level, home prices aren’t expected to drop anytime soon.
Prices Are Driven by Supply and Demand
The housing market operates like any other market – when demand is high and supply is low, prices increase.
Recent estimates show that the U.S. is experiencing a housing shortage of several million homes. This means there are far more buyers (demand) than available homes (supply). This imbalance is the main reason why home prices are unlikely to drop nationally. As David Childers, President of Keeping Current Matters (KCM), explains:
“The main driving force on pricing is the limited amount of inventory in most markets across the country. That issue is not going to be solved overnight or in the next twelve months.”
How Did This Happen?
For more than 15 years, homebuilders have struggled to keep up with buyer demand. Following the 2008 housing crisis, construction slowed considerably, and it has only recently begun to recover (see graph below):
Despite an increase in new construction in recent years, builders are still trying to catch up. According to AmericanProgress.org, they’re not yet meeting current demand, let alone compensating for years of insufficient building.
As long as the housing shortage persists, home prices will likely remain stable or continue to rise in most areas.
What Can We Expect Next Year?
Most experts agree that prices will continue to rise next year, but at a slower and more sustainable rate (see graph below):
It’s important to remember that home prices can vary by market. National trends may not fully reflect what’s happening in your area. If your local market has more available inventory, prices may rise more slowly or even decrease slightly. However, in areas with limited inventory, prices will continue to climb – which is the case in most parts of the country. That’s why it’s essential to work with a local real estate expert who understands your market and can provide insights specific to your area.
In Conclusion
If you’re wondering what would cause prices to drop, it all comes down to supply and demand. With inventory still limited in many markets, prices are expected to stay steady or increase.
To learn about home prices in our area, reach out to a Benson & Mangold Agent. They can help you understand the local market and develop a plan that suits your needs.
