The headlines you see about falling prices are probably using a word incorrectly. Here’s how to differentiate between falling prices and softening prices.
We’re seeing reports that more housing inventory is coming to the market, but buyer demand may not be increasing at the same pace it was earlier this year. The result will be plenty of stories written that address how these situations will affect home values. Many of these writers will confuse softening home prices with falling home prices, but there is a major difference between the two.
The data will show that home values aren’t appreciating at the same levels as in this past; this is a softening of prices. This is not the same as depreciation (falling prices).
Here’s an example: Over the last several years, national home values increased by over 6% annually. A home valued at $300,000 at the beginning of the year would be worth $318,000 by year’s end. If the appreciation rate falls to 4%, that $300,000 home would instead be worth $312,000 by the end of the year. The price of the home didn’t fall; it just didn’t increase at the same rate as the year before.
This year, appreciation rates are projected to end at 5% and drop to somewhere between 4% and 5% next year. This drop will cause home price increases to soften. Again, this is not a case of prices falling. Keep this all in mind when you begin to see shocking headlines about so-called “falling prices.” If depreciation is not mentioned, they’re talking about softening.
If you’re thinking of buying or selling, have any questions, or need further information, feel free to reach out to me. I look forward to hearing from you.