Home prices are persistently hovering near record highs, with little relief in sight. Here's what you should know about home prices and the market that has created them.
For just about any homeowner, talk of falling housing prices can spark panic. For most people, their home is their single biggest investment and there's a natural anxiety that comes with any potential threat to that investment.
On a national scale, housing market activity has shown a very small decline from the peak of 2022’s home prices. Prices plummeted in the second half of 2022 but started a steady rebound in March of this year. As of July 2023, the median home price was $422,000, down 2% from the peak of $431,000 in May 2022, according to the U.S. New Housing Market Index. However, year-over-year data indicates a very small 2% increase in pricing versus July 2022’s $413,000.
Despite a few blips month-to-month, housing prices really aren’t dropping in any significant way.
“I do not see home prices falling significantly in most markets across the country,” said Lisa Sturtevant, chief economist for multiple listing service Bright MLS. “Inventory is still very low and, despite elevated mortgage rates, demand has been resilient.”
There are a lot of reasons behind these persistently high prices, but Sturtevant especially points to lack of housing inventory, lots of first-time homebuyers and record equity held by repeat buyers. After all, if you have just a few houses for sale, but a lot of people ready and able to buy, there’s no way those prices will drop due to the competition alone.
To help you better understand the data, we’re breaking down the different kinds of price drops, declines and decelerations you may hear about, as well as what this means for home prices now and in the future.
What do dropping prices mean?
Are home prices dropping?
Where are home prices falling?
What will happen to home prices next?
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What Do Dropping Prices Mean?
When you hear about home prices dropping, it can mean one of a few things. Clarify which type of dropping price it could be:
Listing price drops or price cuts. If a house is sitting on the market and not getting much interest, the listing agent and seller will likely have a conversation about dropping the home's asking price. When you see more listing price drops on a larger scale, it’s a sign that a tight seller’s market is easing up and potentially starting to favor buyers. In August 2023, only 18.4% of homes had experienced listing price cuts, down year-over-year from 20.2% in August 2022, and even further below the peak of 21.7% in October 2022, according to Redfin data. Listing price drops often coincide with longer median days on the market. In July 2023, homes nationally were on the market an average of 29 days, up from 21 days in July 2022.
Deceleration of sale price increases. In some markets, home sale prices are still higher than they were a year ago, but growing at a much slower rate than previously. Redfin data indicates that the median sales price of a home peaked at $434,780 in May 2022, a significant jump of 15.4% from May 2021’s $376,634. However, between May 2022 and August 2023, prices were almost flat, with a small 3.2% decline to $420,846.
Month-over-month home price declines. If the median home sale price in August was lower than in July, for example, that's considered a declining month-to-month price. However, because of the largely seasonal nature of the housing market, month-to-month numbers are often considered too volatile to indicate changing trends unless placed into a larger context.
Year-over-year home price declines. If the median home sale price in August 2023 was lower than in August 2022, the median price has experienced a year-over-year decline.
Declining home values. A declining home value occurs when the appraised market value is less than the price a buyer paid for it.
Are Home Prices Dropping?
On a national scale, home sale prices have increased very slightly year-over-year, but are starting to flatten out month-over-month. Redfin data shows that the sale price for August 2023 was $420,846, a 3% year-over-year increase compared with the same period in 2022. Month-over-month, closed listing prices rose just 0.22%.
Although 18.4% of houses dropped their prices in August 2023, the sale-to-list price remains at 99.9% and has remained unchanged year over year, likely due to the ongoing housing inventory crunch. Basically, this means that buyers are giving sellers exactly what they're asking for their homes, rather than trying to come in with significantly lower offers, which commonly happens in a buyer’s market.
“We’re seeing houses being listed and sold relatively near their listing price,” said Chris Stroud, cofounder and chief of research for HouseCanary. “Cuts are coming down significantly, as sellers are reluctant to abandon low rates while also selling their home at a discount.”
The median days on market in August 2023 increased by just 4 days year-over-year to 30 days, according to Redfin. This is up significantly from the low of 15 days in July 2021, but the median days on market is still below any point between August 2018 and August 2020. Again, this is likely due to the ongoing supply crunch. In August 2018, there were 2,361,948 homes listed in the United States, but this number has been declining for years and was at just 1,514,235 in August 2023, a 35% decrease in that five-year period and an 18.6% decline year-over-year.
When you consider a five-year window, housing prices have gone from a median sales price of $285,252 in August 2018 to $420,846, which is a 47.5% increase. Experts predict this rate of growth can’t continue, though.
“Prices remain near all-time highs, and mortgage rates are at multidecade highs,” said Stroud. “Given both of these factors, there is little room for home prices to increase for the foreseeable future. There is, however, future risk that prices could come down if the market were to be flooded with inventory.”
Where Are Home Prices Falling?
Although housing prices looked poised to fall earlier this year, by August 2023, the most recent sales data, things had turned around considerably. Not only were prices not dropping constantly, many started rising again.
Even the cities with the highest estimated outbound migration – San Francisco; New York City; Los Angeles; Washington, D.C.; and Louisville, Kentucky – haven’t seen consistent price drops, according to Redfin.
While the number of homes sold in San Francisco was down 26.3% year-over-year in August 2023, prices have gone up another 6% in the same time period.
New York City did see a sales price decrease, but barely, at just 0.61%, despite an 18.2% drop in number of homes sold.
Los Angeles also barely moved the needle, though on the positive side, seeing a 0.4% gain despite a 4.5% decrease in number of homes sold.
Washington, D.C., is the only market in the top five for outgoing migration that has seen any kind of actual decline in housing prices, dropping 3.5% year-over-year in August 2023, along with a 8.3% year-over-year decline in sales.
Even Louisville, Kentucky experienced a 4.2% increase in median sales price along with its 14.2% decrease in home sales.
Recent data from RE/MAX also reported similar findings, with very little change detected in the most declining markets, says Nick Bailey, president and CEO of RE/MAX. “According to the RE/MAX National Housing Report for August, out of the 50 markets we pulled, the ones with the biggest year-over-year decrease in median sales price were Salt Lake City, Utah, at -3.7%; Phoenix, Arizona, at -2.6%; and Portland, Oregon, at -1.7%.”
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What Will Happen to Home Prices Next?
With many contributing factors, there’s no guarantee what will happen next in the real estate market. There are many elements that have created a market unlike others we’ve known, making it difficult to model the future pricing.
“Demand, higher interest rates and the lack of inventory are the primary drivers of high real estate prices,” says Bailey. “It’s estimated 90% of people have interest rates of less than 5% and half of those are less than 3.5%. As a result, those potential move-up buyers are staying on the sidelines and keeping their homes off the market. And new construction isn’t coming fast enough.”
The fact that many homeowners have opted not to sell at this time – in many cases to avoid taking on a higher mortgage interest rate for the next home they would purchase – is one of a handful of factors that seem to be keeping changes to home values relatively slow-paced.
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“Many existing homeowners are sitting with a very low mortgage rate and have not been incentivized to sell,” says Sturtevant. “But there are some people who are going to have to sell and move because of life or career changes. We will likely see listing activity increase some this fall as people swallow the bitter pill of having to take on a higher mortgage rate. A key threshold for homeowners will be 6%. When rates hit 6% we could see listing activity increase. However, we likely won’t see 6% until mid-2024.”