Will House Prices Ever Go Down?

It might seem like housing prices are destined to skyrocket forever. After all, the National Association of REALTORS^® (NAR) found that the median home price in the U.S. was $406,700 in July 2023 – the second-highest median sale price ever recorded.

That’s an impressive figure, but housing prices aren’t guaranteed to rise each year. They can even fall, though that has been a relatively rare occurrence. The housing market is like all investment vehicles: Rising values are never a certainty.

So, will house prices ever go down? Let’s take a look at some of the factors that determine home sale prices, highlighting ways that buyers can prepare for the home buying journey ahead. 

Housing experts and economists are predicting that home values and prices will continue to rise through the end of 2023. Let’s take a look at how Fannie Mae and NAR view housing market trends in the U.S. for the remainder of 2023 and into 2024.

Fannie Mae Housing Market Trends

According to Fannie Mae’s July housing forecast report, housing prices are expected to rise 3.9% for 2023. Fannie Mae also predicts that home prices will decline by about 0.7% in 2024.

Despite a limited housing supply, Fannie Mae anticipates home prices decreasing slightly in 2024 due to a few factors. New construction homes, slowing economic activity and affordability challenges for home buyers may all contribute to a minor dip in housing prices.

NAR Housing Market Trends

NAR reported that the median price of homes for sale on the U.S. housing market in June 2023 hit $410,200. This number is down 0.9% from June 2022 when the number was $413,800 – the highest median home sale price ever recorded.

While home sale prices are some of the highest seen in recent years, NAR also reported that the total number of home sale transactions was down in June 2023. Home sales – including transactions for single-family homes, townhomes, condominiums and co-ops – amounted to about 4.07 million sales in July. Completed home sales dropped 18.9% year-over-year, or fell from 5.13 million in June 2022.

While no one can predict with certainty whether housing prices will or won’t go down, the consensus from housing experts is that home prices may increase slightly or remain relatively steady in the very near future.

Why have housing prices soared to their current levels? Let’s walk through some of the factors that can contribute to high housing prices.

Low Housing Inventory

One of the main factors in rising home prices is that there simply aren’t enough homes out there to meet the demand. According to NAR, the country’s total housing inventory at the end of July 2023 was 1.11 million units. That’s down 13.6% from the same month last year.

When fewer houses are available, demand rises for houses that are on the market. This leads to higher home prices.

The Nation Is In A Seller’s Market

The housing market is always either a buyer’s or a seller’s market. A seller’s market occurs when buyer demand for homes is high and the inventory of homes for sale is low. Housing prices usually increase in seller’s markets because the competition for real estate is so high.

As of the summer of 2023, the U.S. remained firmly in a seller’s market.

Millennials Have Entered The Housing Market 

NAR has reported that millennials are becoming an important home buying force. Based on a 2023 report, NAR found that millennial home buyers ages 24 to 42 make up 28% of all buyers.

NAR also discovered that 70% of younger millennials (ages 24 – 32) who bought a home and 46% of older millennials (ages 33 – 42) who purchased a home were first-time home buyers. These age groups have more first-time buyers than any other generation.

As millennial buyers flood the market, the demand for existing properties rises. This, too, leads to a rise in asking prices on homes for sale.

The COVID-19 Pandemic

The COVID-19 pandemic also caused housing prices to rise. Why? The Federal Reserve Bank of Dallas pointed to the stimulus checks and enhanced unemployment benefits that boosted many people’s household income. Armed with this financial boost, many people entered the housing market during the pandemic, causing demand and home prices to increase.

At the same time, mortgage interest rates remained low during much of the pandemic. This meant that buyers could borrow more money for larger homes, which increased the demand for the limited supply of housing available.

Finally, more people began working from home during the pandemic. Many of these people decided that it was time for more space, while others moved to suburban areas that allowed for less congestion and greater social distancing. This also increased the demand for housing.

Home prices have generally risen over time. That doesn’t mean there aren’t exceptions, including the Great Recession that caused housing prices to begin falling in late 2007.

What could cause housing prices to fall? Let’s consider a few reasons that house prices typically go down.

High Mortgage Interest Rates  

Interest rates always play a key role in the U.S. real estate market. If mortgage rates rise, some buyers could be priced out of the housing market. That’s because higher interest rates translate into higher monthly mortgage payments for buyers who finance the purchase of a home. Fewer buyers being able to buy homes could lessen demand, which could result in a drop in housing prices.

The Federal Reserve (Fed) plays a role in how mortgage interest rates rise or fall. But this role is an indirect, not a direct, one.

When the Fed raises its benchmark interest rate, mortgage interest rates tend to rise. The Fed doesn’t set mortgage interest rates, but mortgage rates and the Fed’s benchmark rate do tend to trend in the same direction.

An Oversupply Of Homes For Sale

An oversupply of homes can also cause housing prices to fall. When supply is higher than demand, sellers will have to set lower selling prices to attract buyers. This also contributes to the housing market being in a buyer’s market instead of a seller’s market.

The Economy Entering A Recession

Housing prices can also decrease if the U.S. economy enters a sustained downturn. Buyers whose incomes fall or those who lose their jobs don’t have the financial resources to buy a home, reducing demand in the housing market.

Buyers waiting for housing prices to fall before buying a home should use this time to prepare. Here are a few ways you can get ready to buy a house while you wait for housing prices to drop.

• Get preapproved for a mortgage. Mortgage preapproval, also called initial mortgage approval, helps buyers understand how much they can pay for a house. It can also make your offer more attractive to sellers, as sellers prefer to work with buyers who are already approved for mortgage financing.
• Save for your down payment. Once you know how much house you can afford, it’s easier to understand how much you’ll need for a down payment. Plan to save for a down payment that’s 3% – 20% of the home’s purchase price, although some zero down payment options are available.
• Improve your credit score. Buyers should also work toward having a strong credit score, which lenders will consider when determining whether you qualify for a mortgage loan. Buyers can boost their credit score by paying their monthly bills on time and paying down credit card debt.

Do you still have questions about the current and future state of the housing market? Check out the frequently asked questions below.

Will housing prices go down in 2023?

Home values aren’t expected to go down anytime soon. Based on findings in a 2023 report, Fannie Mae anticipates housing prices to increase about 3.9% for 2023.   

Should we anticipate a housing market crash?

Most industry experts agree that the housing market isn’t going to crash in the near future. This is primarily because many homeowners today have built up equity in their home, which directly impacts home value.

Requirements to take out a mortgage loan are also stricter than they’ve been the past few decades (such as at the time of the 2008 housing market crash). Because of these tighter standards, borrowers are less likely to default on their mortgage loan and end up in foreclosure.  

Is now a good time to sell my house?

Whether you should sell your house depends on a few factors. Because this is a seller’s market, you’ll likely be able to sell your home for a solid price (perhaps even above the list price). On the flipside, it could prove difficult to find a new house once your property sells.

If you’re not sure how to approach your home sale, work with a reliable real estate agent. Your agent, who might also be a REALTOR^®, can advise you on the steps to sell your house.

While it doesn’t seem like housing prices will go down significantly anytime soon, you still have the opportunity to buy a house. The best time to buy, after all, is when you’re ready to buy – whether that’s because of a job transfer, a growing family or simply because it’s time for a change. Be sure to consult with a skilled real estate agent to determine how to approach the home buying process ahead.

Ready to get started? Fill out a mortgage application with Rocket Mortgage^® to see how you qualify.