Home Price Deceleration Does NOT Mean Home Price Decrease

Terms To Know To Stay Up to Date in This Market

Photo by Morgan Housel on Unsplash

If you've been paying attention to the real estate market recently, you may have heard the terms "home price deceleration" or "home appreciation" mentioned once or twice. At face value, these terms can be somewhat misleading, and it's important to understand what they mean, and then provide some history of the market to contextualize what they mean for the real estate market in the near future.

Home Price Deceleration, Decrease, and Appreciation: What Do They Mean Exactly?

Home price deceleration is crucial to understand because it can be mistaken by some to mean that home prices are declining. That is not the case in the current market, as home price deceleration actually just means that home prices are appreciating at a slower rate than they were previously. Home price appreciation is when a home increases in value over time, through changes in the market. Historically speaking, homeowners can expect their homes to increase at an average rate between 3% - 4% over time. It's important to understand these terms because if you hear that home prices are decelerating and believe that you can wait and home prices will decrease, that is simply not the case.

Providing Historical Context for Recent Home Appreciation Rates

The cause for the recent skyrocketing home prices that we saw from 2020 until now was the supply and demand for houses (see graph below), coupled with historically low mortgage rates, which is also why you will not see home prices actually decrease in the near future. Even with the current interest rates, there is still a sizeable difference between the number of homes on the market and those looking to buy. 

Graph Courtesy of St. Louis Fed and Statista

As mentioned above, homeowners can reasonably expect the value of their properties to go up on average around 3% - 4%, a number that is based on historical data on the home price index gathered from the Federal Housing Finance Agency (FHFA). Their Purchase Only Index showed continual growth from 1991 until the Great Recession, and then more growth leading up to the soaring increase in home values starting in 2020. This data is reliable when considering the value of homes as it is taken from repeat sales transactions on the same single-family properties, showing the increase or decrease in home values over time.

What Housing and Financial Experts Are Saying About Home Prices in the Near Future

The majority of housing and financial experts are saying that the current deceleration in home prices is well within their models based on the current supply and demand of houses and rising interest rates, and still forecast home prices increasing in the future.

This is in line with housing price predictions from Fannie Mae, a government-sponsored mortgage association. Their prediction is that annual home prices will increase by 10.8 percent, a decrease from their previous prediction of 20 percent, yet still a sizeable increase in the prices of homes across the nation.

What Does This Mean for You as a Potential Home Buyer

The most important thing to take away from everything related to home price deceleration and the increase in home prices in the near future, is that buying a home sooner rather than later could be in your best interest. Everyone's financial situation is different, but home prices are not expected to decrease any time soon, which will have a noticeable impact on your home search.

Having an experienced agent on your side to help navigate you through any potential pitfalls and stressful situations brought on by the current market is crucial. When the market gets tough, it's important to have someone familiar with the process of buying a home, and who will get the best possible deal for you and your family. If you are thinking about buying a home in the near future, contact me at (404) 576-8515, or by filling out the contact form below to get started.