Understanding Home Price Trends: Deceleration vs. Depreciation
Written on
Chapter 1: The Current Market Landscape
In an effort to combat inflation, the Federal Reserve has once again raised interest rates. This move may cool the previously heated seller’s market, resulting in reduced competition for buyers and a potential impact on escalating home prices.
As the real estate sector discusses the changes in home prices, various terms come into play. Understanding these terms is crucial for grasping the current market dynamics:
- Appreciation refers to the rise in home prices.
- Depreciation indicates a decline in home prices.
- Deceleration denotes a scenario where home prices are still increasing, but at a slower rate.
Where Home Prices Have Been Recently
Over the past two years, you may have heard that home prices have surged, but in reality, they have been appreciating for over a decade. Since 2012, home prices have steadily climbed (see the graph below):
As illustrated, home values have consistently increased over the last ten years. However, the growth rate has accelerated since 2020, leading to substantial price hikes.
What has driven these increases? The primary factors include a higher number of buyers compared to available homes, low-interest rates allowing more people to secure larger loans, and supply chain disruptions affecting new inventory. This imbalance has created upward pressure on prices, as demand remains robust while supply lags.
Where Experts Believe Home Prices Are Heading
For those navigating the market as buyers or sellers, understanding future trends in home prices is essential. Will prices continue to rise, or is a downturn on the horizon? Should buyers brace for competition, or sellers prepare for a buyer's market?
Experts predict continued appreciation, albeit at a slower rate. In simpler terms, home prices are expected to rise, just not as steeply as before. The following graph highlights forecasts from several industry leaders, none of whom anticipate a decline in prices:
Mark Fleming, Chief Economist at First American, emphasizes a critical factor behind the stability of home prices:
"In today's housing market, demand for homes continues to exceed supply, which sustains upward pressure on prices. Therefore, a decline in prices is unlikely."
While housing supply is beginning to increase, it remains insufficient to trigger a price drop, given the persistent gap between available homes and eager buyers.
Terry Loebs, the Founder of Pulsenomics, shares that most real estate experts and economists foresee continued price increases. He states:
"With home values at unprecedented levels and a majority of experts predicting further increases this year and beyond, home prices remain strong."
Bottom Line
In summary, experts forecast a deceleration in home price growth rather than depreciation. This means that while prices will continue to rise, the pace will be more moderate. To get a complete understanding of the current home price situation in our local Las Vegas market and to discuss your buying and selling aspirations, please connect with me through my website below.
By:
Alex Juarez
Realtor, S.0191493. Perla Herrera Realty
www.alexjuarezrealtor.com
Chapter 2: Additional Insights
This video titled "Depreciation, DTI Dilemmas, and Why Mortgage Rates DON'T Matter" explores the nuances of home price trends and financial decision-making in real estate.
The next video, "Is Depreciation Overrated in Real Estate Investing?" delves into the common misconceptions about depreciation and its impact on the housing market.