Home Prices About to Enter Downward Cycle

Home prices fluctuate constantly, but have certainly been on an upward trend the past few years. In fact, it may not be quite as noticeable, but they’ve been trending upwards for about a decade. The difference is that the upward trend has occurred at an anomalous rate since 2019. But now, we’re starting to see hints that this isn’t going to continue. Currently, home prices are still high; however, sales volume has been dropping for the past four months, which will naturally lead to price drops.

On its own, rising home prices isn’t the problem; the issue is that they have been rising far quicker than wages. Even a period of flat home prices at their current high level would provide some slight respite to homebuyers, though of course they would benefit more from declining prices. Sellers aren’t going to be as happy in the next few years, especially if they bought recently. If they bought before 2019, they may still be able to sell at a profit, but not as much of one as if they had already sold by now. Without knowing how much prices are going to drop, there’s a risk of negative equity for homes purchased within the past three years, with the risk increasing the more recently it was purchased. If the downward cycle is particularly long or the decrease particularly steep, this could even extend to homes purchased much earlier.

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More: https://journal.firsttuesday.us/what-a-cooling-market-means-for-both-sides-of-real-estate-transactions/86063/

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