In recent times, headlines about home sellers slashing prices have been more frequent. These headlines often instill fear rather than provide clarity. So, what’s truly happening with home prices?
The key takeaway is that home prices are higher than they were a year ago and are projected to continue rising, albeit at a slower pace.
Decoding the Headlines: Are Home Prices Really Dropping?
“Price Drops Hit Highest Level in 18 Months As High Rates Dampen Buyer Demand.”
This might lead you to believe that home prices are on the decline. However, it’s important to distinguish between asking prices and sold prices.
Understanding Asking Price vs. Sold Price
The asking price, or listing price, is what a seller hopes to get for their home. However, sellers can’t simply set any price and expect a quick sale. Today’s buyers are informed and cautious, especially with higher mortgage rates straining budgets. This necessitates sellers to adjust their asking prices to attract buyers.
When a seller doesn’t receive much interest, they might reduce the asking price to spark interest. This doesn’t necessarily mean the overall market prices are falling.
According to Mike Simonsen, CEO and Founder of Altos Research, “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.” The final sold price, on the other hand, is the amount a buyer actually pays when the sale is completed.
The Reality of Sold Prices
The crucial point to understand is that actual sold prices are still rising and are expected to continue increasing over the next five years.
What Does This Mean for Home Prices?
Despite a rise in price reductions, overall home values are not declining. Instead, this indicates a moderation in demand, leading sellers to adjust their expectations to match the current market reality.
Even with these price reductions, home values are still increasing annually. The Federal Housing Finance Agency (FHFA) reports that home prices rose by 6.6% over the past year. (see below)
As this map clearly shows, the trend is evident across the country, showing that the market is not in decline. While price reductions can indicate that prices might moderate in the coming months, this is not necessarily a cause for alarm. The Redfin article also notes, “. . .those metrics suggest sale-price growth could soften in the coming months as persistently high mortgage rates turn off homebuyers. For now, the median-home sale price is up 4.3% year over year to another record high. . .” With tight inventory, price moderation is more likely in the near future than price declines.
Why This Is Good News for Buyers and Sellers
For buyers, more realistic asking prices mean a better chance of securing a home at a fair price. It also offers confidence in the market, knowing that prices are stabilizing rather than skyrocketing.
For sellers, adjusting the asking price can lead to quicker sales and fewer price negotiations. Setting a realistic price from the outset attracts more serious buyers and results in smoother transactions.
Conclusion
While the increase in price reductions might seem concerning, it’s not a cause for worry. It reflects a market adapting to new conditions. Home prices are continuing to grow, just at a more moderate pace.
About Mari Van Meter
Mari Van Meter is an award-winning Realtor with Berkshire Hathaway HomeServices American Heritage, leading the Fly Home Dragonfly team. Specializing in digital and traditional marketing, Mari focuses on NW Suburban Chicago, especially Arlington Heights. She offers exclusive off-market properties and guarantees satisfaction for buyers and sellers.
Active in her community and at Countryside Church Unitarian Universalist in Palatine, Mari supports local businesses and champions diversity, equity, and inclusion.
For expert real estate guidance, contact Mari at 630-267-1808 or schedule a discovery call at calendly.com/marivanmeter/discovery-call.
