Will Home Prices Drop? Watch These 3 Key Indicators

Lately, there’s been a growing conversation about whether the housing market is due for a correction. It’s easy to understand why—home prices rose at a record pace from 2020 through mid-2022, then mortgage rates jumped from just over 3% to more than 7% in a matter of months. With affordability hitting near-record lows and incomes not keeping pace, many people feel that home prices must come down. Some even say they can “feel it in their gut.”

But the housing market isn’t driven by gut feelings. It’s driven by data—and there are three key indicators that professionals watch closely to determine whether a meaningful drop in home values is actually on the horizon:

1. Inventory: A Surge in Available Homes

A balanced housing market typically has about 5 to 6 months of inventory. Right now, in many areas, we’re still sitting well below that mark. For prices to fall significantly, we’d need to see a flood of homes hit the market, tipping the scales toward oversupply. So far, that hasn’t happened. In fact, many homeowners are staying put, reluctant to trade their low-interest mortgages for today’s higher rates.

2. Distressed Sales: Foreclosures and Short Sales

Distressed properties—such as foreclosures and short sales—played a major role in the housing crash of the late 2000s. These sales can pull prices down quickly, especially when they come in large numbers. Currently, the number of distressed sales remains historically low, thanks in part to strict lending standards put in place over the last decade.

3. Demand: A Drop in Buyer Activity

Even with higher mortgage rates, buyer demand remains surprisingly resilient. Millennials—the largest generation in U.S. history—are in their prime homebuying years, and housing remains a top priority for many. Until we see a substantial decline in demand, prices are likely to remain supported.

What This Means for Buyers and Sellers

The belief that prices must fall to restore affordability may be appealing on paper, but the real estate market is far more complex. Without a spike in inventory, a wave of distressed sales, and a drop in demand happening all at once, a significant plunge in home prices is unlikely.

If you’re thinking about buying or selling, focus on your personal timing and financial goals rather than trying to predict the next big market shift. And as always, if you have questions or need a deeper dive into your local market conditions, I’m here to help.

Contact me for a meticulous home evaluation and precise pricing!

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