Will home prices drop in 2023? 

Home prices have been anything but predictable these past couple of years.  And if you’re thinking of buying or selling a home, one of the biggest concerns you have right now is probably: will home prices drop in 2023?  Whether you’re looking to buy a home or put your home on the market to sell, no one wants to make a mistake and sell when the market is down or buy at the peak of the market. Part of the issue is how headlines are talking about prices. 

News reporting will typically base their headlines and articles on the current home sales stats compared to the last few years. But this is the part that’s misleading!  Comparing this year to the past two pandemic covid years (when home prices reached record highs that were unsustainable) is almost worthless.   So we need to look at things a little differently.

What we’re seeing now are home prices beginning to normalize, with the worst home price declines already behind us. This is beginning to look like a return to more normal home price appreciation.

To illustrate this, let’s focus on what’s typical for the market and omit the last few years since they were anomalies. 

Let’s start by talking about seasonality in real estate. In the housing market, there are predictable ebbs and flows that happen each year. Spring is the peak homebuying season when the market is most active. That activity is typically still strong in the summer but with school out and vacations, it begins to wane a bit and then as the holiday season approaches, home prices see less appreciation. Home prices follow along with seasonality because prices appreciate most when something is in high demand.

That’s why, before the abnormal years we just experienced, there was a reliable long-term home price trend. The graph below uses national data from Case-Shiller to show typical monthly home price movement from 1973 through 2021 (not adjusted, so you can see the seasonality):

As the data from the last 48 years shows, at the beginning of the year, home prices grow, but not as much as they do entering the spring and summer markets. That’s because the market is less active in January and February since fewer people move in the cooler months. As the market transitions into the peak homebuying season in the spring, activity ramps up, and home prices go up a lot more in response. Then, as fall and winter approach, activity eases again. Price growth slows, but still typically appreciates.

Are home prices falling?

In the coming months, as the housing market moves further into a more predictable seasonal rhythm, you’re going to see even more headlines that either get what’s happening with home prices wrong or, at the very least, are misleading. Those headlines might use a number of price terms, like:

• Appreciation: when prices increase.
• Deceleration of appreciation: when prices continue to appreciate, but at a slower or more moderate pace.
• Depreciation: when prices decrease.

They’re going to mistake the slowing home price growth (deceleration of appreciation) that’s typical of market seasonality in the fall and winter and think prices are falling (depreciation) and cause a flurry of worry.  Don’t let those headlines confuse you or spark fear! 

Although we don’t have a crystal ball to say with absolute certainty that home prices won’t fall in the coming months, nor are economists always right in their predictions.  What we do know is that it’s normal to see a slowing of home price growth but this doesn’t mean home prices are dropping.  In fact Fannie Mae predicts a 3.9% rise in home prices through the remainder of 2023.

Bottom Line

If you have questions about what’s happening with home prices in our local area, let’s connect.