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When Will Real Estate Prices Drop?
Are real estate prices going to drop in 2022 and 2023? What are the current predictions for our real estate market? As far as predicting future trends, it's difficult to say with certainty whether or not real estate prices will continue to rise or fall. It depends on many different factors, such as how much inventory exists, interest rates, the value of homes, and other macroeconomic indicators.
In this article, we will tell you exactly what you should know about real estate prices and the real estate market so you can make the best housing market decisions when you're ready to buy and sell your home.
What to know about the 2022 Real Estate Market
If you're thinking about buying or selling a property right now, you might be wondering whether or not real estate prices will drop. There's no easy answer to this question, but here are some things to consider.
Real estate prices tend to rise during good economic times and fall during bad ones. But other factors like the current supply and demand for housing, U.S. dollar value, home value trends, low foreclosure rates, and millennial homebuyers will influence real estate prices, too.
Considering the above factors, however, we do not believe real estate prices will drop. Here is why:
1. Housing Supply and Demand
We have a huge housing supply and demand imbalance in this country that began in 2008. Currently, the United States has a 5.5 million home deficit. As this deficit is likely to continue and expand, and since interest rates are increasing, home builders are slowing down new construction builds. If there's more inventory than buyers, then prices will drop. However, if there's not enough inventory, then prices will rise.
2. Value of the U.S. Dollar
40% of the US dollars have been printed in the last 24 months. Considering this current U.S. dollar statistic, we are not seeing home price appreciation as much as we are seeing dollar devaluation.
3. Home Value Trends
Another thing to remember is home values do not typically go down. This chart from the Fed on home prices shows only one real estate correction in the last hundred years. Even so, that was more of a financial correction and not a real estate correction.
Due to the current record appreciation and dollar devaluation, 2022 has shown a homeowners equity record of $9.9 trillion. Also, homebuyers looking to borrow money for their home have a lower "loan to value" ratio of 55%. In 2008, the "loan to value" ratio was 85%. Therefore, if a market shift occurred, homeowners did not have enough equity to withstand the housing market shift.
So far in 2022, there is a record amount of homeowner appreciation. Many homeowners have locked in a historically low-interest rate of around 3%. It's very unlikely that sellers are going to be motivated to sell their homes with record appreciation and low-interest rates.
4. Low Foreclosure Rates
I believe home prices will not drop in the next 12 months since we are at record low foreclosure rates. It seems unlikely for prices to drop when home sellers aren't selling and foreclosures in the marketplace have statistically dropped.
5. Real Estate for Millennials
There is a pent-up demand from millennial homebuyers. First-time homebuyers only account for about 27% of the market, whereas a normal market sits at 45%. When interest rates drop, there will be an increase in millennials hoping to buy their first home.
Conclusion
Considering our current housing supply and demand, U.S. dollar value, home value trends, low foreclosure rates, and millennial homebuyers, I do not believe real estate prices will drop in the next 12 months.
Posted by Matt Curtis on
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