Are Home Prices Falling?

If you’ve caught recent headlines about home sellers slashing prices, you might think the sky is falling in the real estate market. But let’s take a moment to separate the hype from the facts and really understand what’s going on with home prices.

Here’s the scoop: home prices are actually higher than they were at this time last year, and they’re expected to keep climbing, albeit at a slower rate.

Now, you might have seen a headline in the media saying, “Price Drops Hit Highest Level in 18 Months As High Rates Dampen Buyer Demand.” Sounds ominous, right? But hold on—this doesn’t necessarily mean that home prices are tanking.

In fact, while the latest data from Realtor.com shows that 16.6% of homes on the market had price reductions in May, up from 12.7% last May, this doesn’t indicate a drop in overall home prices. It’s crucial to understand the difference between the asking price and the sold price.

Understanding Asking Price vs. Sold Price

The asking price, or listing price, is what a seller hopes to fetch for their home. But listing a home at a high price doesn’t guarantee it will sell at that price, especially in today’s market where buyers are more budget-conscious due to higher mortgage rates. If buyers aren’t biting, sellers might lower their asking price to attract more interest—this is often the story behind those headlines about price drops.

Mike Simonsen, CEO and Founder of Altos Research explains, “Not only is the share of homes with price cuts elevated compared to a year ago, but more price cuts are happening each week than last year.”

The final sold price, on the other hand, is what the buyer actually pays at the end of the day, and these numbers are still on the rise.

What This Means for Home Prices

Despite the uptick in price reductions, overall home values aren’t falling; rather, the demand is simply stabilizing. Sellers are adjusting their expectations to match the current market reality, which still shows growth in home values. According to the Federal Housing Finance Agency (FHFA), home prices rose 6.6% last year, and the trend is similar across the country.

While price reductions can suggest a future moderation in prices, this is expected and shouldn’t be a cause for alarm. Redfin’s recent observations also suggest that “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 the current tight inventory, a dramatic decline in prices is less likely than moderate price adjustments.

Why This Is Good News for Buyers and Sellers

For buyers, more realistically asking prices means a better chance of getting a home at a fair price. It also allows you to approach the market with greater confidence, knowing that prices are stabilizing rather than skyrocketing.

For sellers, understanding the need to adjust your asking price can lead to quicker sales and fewer price negotiations. Setting a realistic price from the get-go can attract more serious buyers and pave the way for smoother transactions.

Bottom Line

The increase in price reductions might seem worrying at first glance, but it’s not a red flag. It simply reflects a market adapting to new dynamics. Home prices are continuing to grow, just at a steadier pace. So whether you’re buying or selling, the market is still ripe with opportunity—it’s all about understanding the current landscape.

Ready to talk about putting your home on the market? Let’s chat!