Home Prices Aren’t Declining, But Headlines Might Make You Think They Are

Recent headlines might have you worried about home prices dropping, but the reality is different. Here’s what’s actually happening with prices.

The Real Story Behind the Headlines

Home prices are currently higher than they were a year ago and are expected to keep rising, though at a slower pace. A recent article from Redfin mentioned:

“Price Drops Hit Highest Level in 18 Months As High Rates Dampen Buyer Demand.”

This might sound alarming, but it doesn’t mean overall home prices are falling. The key is understanding the difference between asking prices and sold prices.

Understanding Asking Price vs. Sold Price

• Asking Price: The amount a seller hopes to get for their home when they list it.
• Sold Price: The actual amount a buyer pays when the transaction is complete.

Sellers can't just set any price and expect to get it. Today’s buyers are informed and cautious, especially with higher mortgage rates. If a seller isn’t attracting buyers, they might lower the asking price to spark interest. This adjustment can be misinterpreted as falling home prices.

Mike Simonsen, CEO and Founder of Altos Research, notes:

“Not only is the share of homes with price cuts elevated compared to one year ago, but more price cuts are happening each week than last year.”

However, sold prices are still rising and are expected to continue increasing for the next five years.

What Does This Mean for Home Prices?

The increase in price reductions doesn’t indicate overall home values are declining. It signals that demand is moderating, and sellers are adjusting their expectations accordingly.

Despite more price reductions, home values are still growing annually. According to the Federal Housing Finance Agency (FHFA), home prices went up 6.6% over the last year, showing that the market is not in decline.

Why This Is Good News for Buyers and Sellers

• For Buyers: More realistic asking prices mean you have a better chance of buying a home at a fair price. You can enter the market with more confidence, knowing prices are stabilizing.
• For Sellers: Adjusting your asking price can lead to faster sales and fewer price negotiations. Setting a realistic price from the start attracts serious buyers and leads to smoother transactions.

Bottom Line

While the increase in price reductions might seem troubling, it’s not a cause for concern. It reflects a market adjusting to new conditions. Home prices are continuing to grow, just at a more moderate pace. If you’re thinking of buying or selling, understanding these dynamics can help you make better decisions.