Will home prices ever go down?

If you’re looking to buy a house, you may be seeing the figures being reported in the press and asking yourself the question, will home prices ever go down? While it’s easy to be frustrated when looking at the national numbers, it’s important to remember that real estate is greatly influenced by location. What matters most is what’s happening on the ground in your area.

Are property prices going down?

In most areas of the country, it’s still a seller’s market. This is proven out by the fact that home prices are going up if you look at the national indices. We’ll go over that, but we’ll also zoom in on some local markets because the picture may differ quite a bit depending on where you are.

Want a snapshot for your area? Check out the trend reports offered by our friends at Rocket Homes?.¹

S&P CoreLogic Case-Shiller index

The Case-Shiller index looks at purchase transactions in major markets across the country. There’s a 2-month lag between the date of the release and the most current numbers. But it does give a snapshot of all transactions. According to the most recent data available for June 2024, prices are up 5.42% for the year.

FHFA house price index

The Federal Housing Finance Agency (FHFA) is the federal regulator for Fannie Mae and Freddie Mac, the biggest backers of conventional loans in the mortgage market. The agency has a house price index that comes out the same cadence and lagging data time as the Case-Shiller index, but it looks specifically at transactions backed by conventional loans.

On a national basis, the data shows that prices are up 5.7% since the second quarter of 2023. However, when you look at the data on a metropolitan level, four markets (New Orleans, Louisiana; Oakland, California; Cape Coral-Fort Myers, Florida and Austin, Texas) have seen price drops ranging from an average of 0.2% to an average of 3.2% on the year. Further, 17 markets have seen price drops over the course of the quarter. The tides may be changing locally.

Existing home prices

Both first-time and repeat home buyers often look to sales of preowned, or existing, homes when it comes time to look for a place. The perception is often that this is more affordable than going with new construction.

It’s important to note that while that may be true in many cases depending on the month, it depends on the inventory available in your area. If builders are constructing starter homes and there isn’t so much existing home inventory on the market to match that, it may actually be more economical to go with new construction.

In addition to tracking inventory and the total number of monthly sales, the existing home sales report from the National Association of REALTORS^® (NAR) tracks median sale prices.

NAR’s reported median price of homes for sale on the U.S. housing market in July 2024 was $422,600, which represents a 4.2% price increase from the previous July. All four regions in the U.S. registered year-over-year price gains.

NAR also reported that home sale transactions were down slightly, a 2.5% decrease from the previous year. Home sales – including transactions for single-family homes, townhomes, condominiums and co-ops – amounted to a seasonally adjusted annual rate of 3.95 million sales in July. (There were nearly 4.3 million the previous year.)

NAR chief economist Lawrence Yun said that sales are still slow, “But consumers are definitely seeing more choices, and affordability is improving due to lower interest rates."

New home prices

Sales of newly constructed homes are tracked monthly by the Department of Housing and Urban Development and Census Bureau. As part of that report, sales and price are tracked. The median sale price for July was $429,800, down 1.38% on the year. Sales of new homes are up 5.6% over last year in the July data at $739,000.

What do housing experts expect?

We’ve gone over current market conditions, but what should you expect moving forward? No one has the power to predict the future with 100% accuracy, but there are plenty of major players in the housing market who have made some educated guesses. Let’s take a look.

Fannie Mae Housing Market Trends

Fannie Mae says that home buyers should anticipate a reduced rate of home appreciation in 2025. If they’re right, home prices will still be increasing, but at a slower rate than they have the last few years. Fannie Mae puts this at 3%.

Part of the reasoning for this involves a projected 8.5% increase in total home sales to 5.188 million. They projected an increase in both new and existing inventory of single-family homes, those with up to four units.

Freddie Mac residential real estate predictions

Freddie Mac expects that home prices will increase 0.6% over the course of 2025 as low inventory due to not enough home construction continues to push prices up. To go along with that, it anticipates that while home sales will continue to rise, they’ll be below 6 million on an annual basis in the coming year.

Why are home prices high?

Why have housing prices soared to their current levels? Here are some of the factors that can contribute to higher home prices.

Low housing inventory

One factor that plays a role in rising home prices is demand for homes that surpasses the number of homes available. According to data from the Federal Reserve (the Fed), the U.S. had 909,344 active home listings in August 2024. While that’s an increase from all of 2021 – 2023, it’s still significantly lower than pre-pandemic levels.

When fewer houses are on the market, demand rises for houses that are. This leads to higher home prices. However, one key reason that experts predict housing appreciation will slow is the continued increase in housing inventory.

The nation being in a seller's market

The housing market is always either a buyer’s or a seller’s market. A seller’s market occurs when buyer demand for homes is high and the inventory of homes for sale is low. Housing prices usually increase in seller’s markets because the competition for real estate is so high.

As of the summer of 2024, the U.S. remained firmly in a seller’s market.

Millennials dominating the housing market

NAR has reported that millennials have regained their status as the largest home buying demographic. Based on a 2024 report, NAR found that millennial home buyers ages 25 to 43 make up 38% of all buyers.

NAR also discovered that 75% of younger millennials (ages 25 – 33) and 44% of older millennials (ages 34 – 43) who purchased a home were first-time home buyers. These age groups have more first-time buyers than any other generation.

Gen Z has also started to crack into the housing market, accounting for 3% of all home sales. That number should only increase with time.

What could cause house prices to go down?

Home prices have generally risen over time. Exceptions include the Great Recession that caused housing prices to begin falling in late 2007.

What could make housing prices fall? Here are a few variables that could cause house prices to go down.

High mortgage interest rates

Interest rates always play a key role in the U.S. real estate market. If mortgage rates rise, some buyers could be priced out of the housing market. That’s because higher interest rates translate into higher monthly mortgage payments for buyers who finance the purchase of a home.

Fewer buyers will lessen demand, which could lead to a drop in housing prices. However, interest rates are just one factor, so increasing them won’t automatically lower home prices.

The Fed plays a role in how mortgage interest rates rise or fall. But this role is an indirect one, not a direct one.

When the Fed raises the target for its benchmark interest rate, mortgage interest rates tend to rise. The Fed doesn’t set mortgage interest rates, but mortgage rates and the Fed’s benchmark rate typically trend in the same direction.

It’s worth noting that the Fed only reacts to economic data well after the fact because of its meeting schedule. The bond market tends to be ahead of the Fed in terms of what’s going to happen because it can react on the day reports are released. In contrast, the Fed rarely makes a move off schedule. The last time they did was the beginning of the pandemic. Before that, an emergency meeting hadn’t been held since the financial crisis of 2007.

Fed moves tend to be priced in. Unless the market is surprised by the magnitude of a move, rates don’t tend to move up or down on the day of a Fed announcement.

An oversupply of homes for sale

An oversupply of homes can also cause housing prices to fall. When supply exceeds demand, sellers will have to set lower prices to attract buyers. This contributes to the housing market being in a buyer’s market instead of a seller’s market.

The economy entering a recession

Housing prices can also decrease if the U.S. economy enters a sustained downturn. Buyers who see a drop in income or lose their job don’t have the financial resources to buy a home, reducing demand in the housing market.

How Buyers Can Prepare To Purchase A New Home

Buyers who want housing prices to fall before they buy a home should use this time to prepare. Here are a few ways you can get ready to buy a house while waiting for housing prices to drop.

• Get preapproved for a mortgage. Mortgage preapproval, also called initial mortgage approval, helps buyers understand how much they can pay for a house. It can also make your offer more attractive to sellers, who prefer to work with buyers already approved for mortgage financing.
• Save for your down payment. Once you know how much house you can afford, it’s easier to understand how much you’ll need for a down payment. Plan to save for a down payment that’s 3% – 20% of the home’s purchase price if you’re likely to seek a conventional loan. Zero down payment options in the form of government-backed VA loans and USDA loans are available to some borrowers.
• Improve your credit score. It’s a good idea to work toward having a strong credit score, which lenders will consider when determining whether you qualify for a mortgage loan. Buyers can boost their credit score by paying their monthly bills on time and paying down credit card debt.

The bottom line: You’ll know when it’s time to buy a house

While housing prices may not go down significantly on a national basis anytime soon, focus on what’s happening where you’re looking to buy. As mentioned earlier, prices have gone down compared to the second quarter of 2023 in four of the top 100 markets in FHFA data. Further, 17 markets have seen prices drop since the first quarter. The pendulum may be swinging.

Think more about the payment and your own financial and personal situation rather than trying to time the market. The best time to buy is when you’re ready to buy – whether that’s because of a job transfer, a growing family or simply because it’s time for a change. Be sure to consult a skilled real estate agent to determine how to approach the home buying process ahead.

Ready to get started? Fill out a mortgage application with Rocket Mortgage^® to see how you qualify.

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