When will house prices go down?

Home prices have fallen by 2.4% in 2023, but they're on the rise again.

The red-hot market of the early 2020's has cooled, but potential homebuyers priced out by rising mortgage rates are still waiting for their way in. Home sellers eager to take advantage of the market are growing anxious that they may have missed a golden opportunity. Both are left wondering when house prices will come down, if ever.

There are signs that home prices have bottomed out and will rise through 2024. Zillow predicts that home prices will jump 6.5% by July 2024, while other experts forecast more conservative increases. However, as long as inventory remains strained, house prices aren't likely to go down.

Are home prices going down?

The answer depends on the market. While home prices are down in most parts of the country compared to 2022, they're up compared to earlier this year. In fact, median home prices rose by 8.5% in the second quarter of 2023, and a total of 128 metro areas had year-over-year price increases.

→ Learn more about whether now is a good time to buy a house‍‍

Will home prices drop in 2024?

The push and pull of high borrowing costs against low inventory will likely continue to cause home price volatility in 2024. On the one hand, it’s more expensive to buy homes because of the costs of securing a mortgage (which should dampen demand). On the other, though, is a decades-long inventory shortage with no end in sight (increasing demand).

Moody’s forecasts the home prices to fall 3.5% by the end of 2024, while the National Association of Realtors expects home prices to rise by 2.4%, and Zillow expects them to rise by as much as 6.5%.

‍Related: Should I buy a house during a recession? Are we in one now?

Ultimately, the housing market is in a crisis of uncertainty. Here are the major factors driving it:

• Interest rate hikes: When interest rates go up, so does the cost of mortgages, which dampens demand. Less demand means less competition for houses, motivating sellers to cut costs. This is one factor that is driving down prices in some markets today. (Learn more about what affects mortgage rates.)
• "Locked-in" homeowners: More than 80% of current mortgage holders have an interest rate less than 5%, which is significantly lower than current ones. This has created a "locked-in" effect, where many potential home sellers aren't selling in order to keep their low mortgage rate. This has exacerbated a longstanding inventory shortage, and continues to drive home prices up.
• Recession reduces demand: Fears of a recession continue to spook the market. Although home values generally continue to appreciate during recessions (with the notable exception of the 2007 financial crisis), a declining economy puts pressure on financial resources, which could reduce demand in the same way interest rate hikes do. This could also cause sellers to lower home prices.

→ Find out whether it's a buyers or sellers market

What happens when home prices don’t drop

Many homeowners and sellers have grown accustomed to double-digit appreciation in home prices. The sky-high trajectory of home values has meant record equity gains for homeowners — topping $27.8 trillion nationally in June 2022. However, it has also prevented many first-time homebuyers from entering the market.

As home values have risen, the affordability of houses has continued a steep downward trend. The Housing Affordability Index, which measures the ease with which a family with a median income can qualify for a mortgage on a median-priced home, shows just how much housing affordability has suffered.

A market correction brings the promise of equilibrium. After the unprecedented volatility of the last two years, any sense of normalcy in the market may feel like a price drop — especially for those who have been waiting to buy a home for the first time.

How will house prices going down affect me?

The changing market will impact buyers, sellers, and homeowners differently. Here’s how the market may impact you:

Homeowners

Homeowners who have enjoyed double-digit rates of appreciation may be worried about their home equity as the market goes through this period of transition. However, it’s important to remember that appreciation is only one factor that drives home equity — so does paying down your mortgage and investing in high ROI projects for your home. While the single-digit appreciation forecasted for 2024 is nothing compared to what it was in the early 2020's, homeowners can expect modest gains.

Homebuyers

While higher interest rates continue to create a significant barrier to home affordability, prospective homebuyers can expect more flexibility in asking prices, especially if they’re in a hot market.

According to Deitrich Fields, an Orchard Buying Advisor based in Dallas-Fort Worth, we’re moving towards a fair market, compared to the past two years.

A year ago, homes didn't last on the market past that weekend, but now we're starting to see homes stay on the market two, three weeks, four weeks. All of this is a step in the right direction.”

Homesellers

For homeowners who are feeling trapped by the fluctuations in the market, and its effect on home prices, Fields offers some comforting advice:

“If you own property, there's no such thing as being powerless. I still have not seen a seller who's experienced significant losses in this market. Sellers will still be able to unlock their equity and come out on top.”

In an environment where housing affordability is a challenge for buyers, people looking to sell in this market should:

• Have realistic expectations: The market has changed and will continue to in the months ahead. There is plenty of reason to remain optimistic, and selling a home in a weekend for tens of thousands of dollars over the asking price may become unlikely.
• Set a competitive asking price: As sellers readjust their asks in a cooling market, be prepared to set a listing price that reflects the changing landscape. Work with your agent to discuss strategies and help you set a price that will sell.
• Be prepared to wait: The median days on market is on the rise and is expected to continue as the market normalizes. Don’t be concerned if your house is on the market for longer than a month — this is a sign of the market returning to a healthy balance. Still worried? Consider this: The lowest median days on market in 2019 was 56 days, and 2019 was considered a seller's market. 

Want to know how much your home is worth? Get started with a free valuation — our estimates are 30% more accurate than leading estimates.

FAQs

More answers to your questions about when house prices will go down.

What factors influence fluctuations in house prices?

House prices are primarily influenced by the balance between supply and demand, with high demand and limited housing supply driving prices upward. Larger economic factors, like interest rates, employment levels, and income growth, also play a significant role, as they affect consumers' purchasing power. Additionally, regional factors like population growth, local amenities, and housing regulations can further impact house prices in specific areas.

What are leading indicators of a housing market downturn?

Leading indicators of a housing market downturn typically include rising interest rates, a significant increase in housing inventory, and a slowdown in home sales. When central banks raise interest rates, it can make mortgages more expensive, reducing the number of qualified buyers and slowing down demand. An excessive supply of homes on the market can also signal a downturn, as it often leads to price reductions and longer time on the market. Finally, a decline in the number of homes being sold, especially when combined with increasing inventory, suggests a shift in market dynamics that may lead to lower prices.

How long does a housing market downturn typically last?

The duration of a housing market downturn can vary widely depending on various factors, including the underlying causes and the effectiveness of policy interventions. Historically, downturns in the housing market have lasted anywhere from a few quarters to several years. The severity and duration of a downturn can be influenced by economic conditions, government policies, and regional market dynamics, making it challenging to predict an exact timeframe for recovery.