Are Home Prices Softening or Are They Falling?

Dated: December 13 2018

Views: 12

We are beginning to see reports that more housing inventory is coming to the market and that buyer demand may not be increasing at the same pace it did earlier this year. The result will be many headlines written to address the impact that these two situations will have on home values.

Many of these headline writers will confuse “softening home prices” with “falling home prices,” but there is a major difference between the two.

The data will begin to show that home values are not appreciating at the same levels as they had over the last several years (softening prices). This does NOT mean that prices are depreciating (falling prices).

Here is an example: Over the last several years, national home values increased by more than 6% annually. If you had a home worth $300,000 at the beginning of the year, it would be worth $318,000 by year’s end. If the appreciation rate “falls” to 4%, that $300,000 house would be worth $312,000 at the end of next year – a $6,000 difference.

The price of the home did not fall. It just didn’t increase at the level it had the previous year.

Appreciation rates are projected to end this year at approximately 5%, and then drop to somewhere between 4-5% next year. This drop in appreciation rate will cause home price increases to soften.

Again, this does not mean that home prices will depreciate, but instead that they will appreciate more slowly.

Bottom Line

Be careful when reading headlines that discuss home values. Some headline writers will be legitimately confused and will use the word falling in place of softening. Others will realize that the headline “Home Prices are Falling!” will get more clicks than “Home Prices are Softening” and will intentionally write the more compelling headline. Read the article. If the word depreciation is not mentioned, home values are not falling.

Blog author image

Carlos Cardenas

Real Estate Broker offering over 17 years of experience in the industry specializing in Commercial and Residential Real Estate in South Florida . Solid business background with experience in accountin....

Latest Blog Posts

Why Is It so Important to Be Pre-Approved in the Homebuying Process?

Why Is It so Important to Be Pre-Approved in the Homebuying Process?You may have heard that pre-approval is a great first step in the homebuying process. But why is it so important? When

Read More

New Index Reveals Impact of COVID-19 on Real Estate

New Index Reveals Impact of COVID-19 on Real EstateEarlier this month, realtor.com announced the release of their initial Housing Recovery Index, a weekly guide showing how the

Read More

Will the Housing Market Turn Around This Year?

Will the Housing Market Turn Around This Year?Today, many people are asking themselves if they should buy or sell a home in 2020. Some have shifted their plans or put them on hold over the past

Read More

Impact of the Coronavirus on the U.S. Housing Market´╗┐

Impact of the Coronavirus on the U.S. Housing MarketThe Coronavirus (COVID-19) has caused massive global uncertainty, including a U.S. stock market correction no one could have seen.

Read More