Towards the end of the previous year, a slew of headlines predicted a substantial decline in home prices for 2023. This sparked considerable apprehension and raised questions about the potential recurrence of the housing crash that unfolded in 2008. However, it turns out that these headlines were wide of the mark.
While there was indeed a modest correction in home prices following the extraordinary price appreciation during the so-called 'unicorn' years, national home prices did not plummet. In fact, home prices demonstrated more resilience than many had anticipated.
Let's examine some of the home price forecasts from experts late last year compared to their most recent revisions, illustrating that even experts recognize that their initial pessimism was unfounded.
Expert Home Price Forecasts: Then and Now
The chart below presents the 2023 home price forecasts from seven reputable organizations. It highlights their original 2023 forecasts (released in late 2022) for year-end home prices and their most recent revised 2023 forecasts:
As indicated in the middle column (in red), all the initial forecasts anticipated a decline in home prices. However, if you shift your attention to the right column, you'll observe that all the experts have updated their projections for year-end to indicate either flat or positive price growth. This marks a significant departure from the initial negative forecasts.
There are several reasons behind the resilience of home prices against significant declines. In the words of Odeta Kushi, Deputy Chief Economist at First American:
"One thing is for sure, having long-term, fixed-rate debt in the U.S. protects homeowners from payment shock, acts as an inflation hedge – your primary household expense doesn't change when inflation rises – and is a reason why home prices in the U.S. are downside sticky."
A Glimpse Ahead to Prepare for Future Headlines
In the coming months, you can expect to encounter misleading media coverage related to home prices. This is primarily due to the seasonal nature of home price appreciation, which tends to be misunderstood. To stay ahead of the next round of negative headlines, here's what you need to know.
Towards the end of this year, as housing market activity typically decelerates (as it does each year), the pace of home price growth will also slow down. However, it's vital to understand that a slowdown in appreciation does not equate to home prices depreciating. In essence, a deceleration in price growth is not synonymous with declining home values.
Headlines, whether accurate or not, can have a profound impact. While media reports at the end of last year predicted a substantial decline in home prices, this did not materialize. To navigate through the noise and access reliable data, consider connecting with a trusted real estate agent who can provide you with factual insights into the housing market.