A Real Estate Professional Helps You Separate Fact From Fiction
One prevalent myth is that home prices are on the brink of a crash. Headlines use terms like appreciation, depreciation, and deceleration to describe market trends, which can be confusing. The truth is, experts are not predicting a decrease in home prices.
1. Appreciation, or an increase in home prices:'
Appreciation in the context of the housing market refers to the increase in the value of residential properties over time. This means that, as time passes, homes become more valuable and can be sold at a higher price than they were originally purchased for. This acknowledges that home prices are not going to fall, which implies that there will still be appreciation in home values. Home prices are expected to increase over time, indicating that homeowners and investors can generally expect their properties to become more valuable. However, the key point here is that this appreciation will occur at a slower pace, suggesting a deceleration in the rate of price growth.
2. Depreciation, or a decrease in home prices:
Depreciation is the opposite of appreciation. It signifies a decrease in the value of a property over time. While appreciation can be a positive sign for homeowners and investors, depreciation is typically a cause for concern. There are various factors that can lead to home depreciation, including economic downturns, high crime rates in the neighborhood, outdated or poorly maintained properties, or a decrease in demand for housing in a particular area.
The myth explicitly rejects the idea of home prices experiencing depreciation, meaning that there won't be a significant decrease in the value of residential properties. This provides reassurance to homeowners and investors, as they don't need to worry about their properties losing value in the foreseeable future.
3. Deceleration, which is an increase in home prices, but at a slower pace:
Deceleration, in the context of the housing market, refers to a slowdown in the rate of home price appreciation. It means that while home prices are still rising, they are doing so at a reduced or decelerated pace compared to previous periods. The crux of the myth is the concept of deceleration. It clarifies that while home prices will continue to rise, they will do so at a slower pace. This is essential for prospective buyers and sellers to understand because it means that the housing market is not experiencing a sharp decline or correction, but rather a moderation in the rate of price growth. This deceleration is attributed to factors like higher mortgage rates and increased housing inventory, which are expected to temper the rapid price increases observed in recent years.
Rather, they anticipate that home prices will continue to rise, albeit at a slower pace. Selma Hepp, Deputy Chief Economist at CoreLogic, explains that "higher mortgage rates coupled with more inventory will lead to slower home price growth but unlikely declines in home prices." In other words, home prices may not skyrocket as they have in recent years, but they are not expected to plummet.
Another misconception is that the housing market is in a correction. A correction is generally defined as a 10% to 20% drop in the value of a market index or an individual asset. However, home prices are still appreciating, and experts project that this trend will continue, albeit at a more moderate pace. This means that the housing market is not undergoing a correction; it is simply stabilizing compared to the extraordinary growth of the past two years.
Some headlines create concern that the housing market is a bubble waiting to burst, similar to the 2008 financial crisis. However, experts assure us that the current situation is vastly different. One significant reason for this distinction is the stricter lending standards in place today. Logan Mohtashami, Lead Analyst for HousingWire, points out that "the notion that credit lending in America will collapse as it did from 2005 to 2008 couldn't be more incorrect." During the last housing bubble, acquiring a mortgage was considerably easier, leading to a subsequent crash. In contrast, lending standards have tightened significantly since then, ensuring that today's mortgage borrowers are far more qualified and the market more stable.
Bottom Line:
In the midst of conflicting housing market information, it's essential to consult a knowledgeable real estate professional who can provide insights into the current market trends, historical context, and other critical factors. While the real estate market may be shifting, it's important to remember that the myths of falling prices, market corrections, and impending crashes are
