House Prices Will Go Down, Real Estate Experts Predict

Home prices have skyrocketed in recent months and have remained high in June, as first-home buyers in the United States are squeezed out of the market and sales start to drop as fewer people can afford to purchase their first or second home.

As of last month, the median sale price of new homes in the U.S. was $402,400, while the average sales price was $456,800. These averages were slightly lower than in May when the median sales price of new houses was $449,000, and the average sales price was $511,400.

In June, the median sale price of existing homes was $416,000 —13.4 percent higher than in June 2021, when the average price was $366,000. It was the 124th consecutive month of year-on-year increases.

But experts foresee that these price increases cannot go on for long.

Housing market
Analyst Dennis McGill told Newsweek his company Zelman & Associates expects home prices to start dropping by 2023. In this photo, green grass lawns are seen in front of homes in a Los Angeles neighborhood on July 5, 2022. FREDERIC J. BROWN/AFP via Getty Images

"We do think there's going to be home price declines, home price deflation on a national basis," Dennis McGill, the Director of Research at Zelman & Associates, told Newsweek. "That was actually our expectation prior to this big increase in mortgage rates."

When Zelman & Associates published its forecasts for the housing market last December, they were already expecting a "modest decline" in existing home prices in 2023.

"Each forecast since then—the March forecast and then the June forecast—we've increased the decline that we expected," McGill said. "So we now expect about a 4 percent decline in 2023 and we expect a 5 percent decline in 2024, and that's on the existing home sales side. On the new construction side, we also expect prices to go negative."

McGill's and Zelman & Associates's prediction is based on the fact that in the past couple of years they observed a mismatch between supply and demand within the housing market. This was caused by the growing number of people looking into purchasing a house while mortgage rates were relatively low during the pandemic, at a time when stock was very limited and new construction halted.

But as construction of new homes has picked up now, McGill and Zelman's experts expect "almost the inversion of what happened in the last couple of years, when demand was strong and supply really was not able to respond."

"You're now going to have the other side of that coin, where supply is going to surpass demand and even see a price adjustment to clear the market," McGill said.

house prices will fall say experts
House prices are expected to fall, according to experts. Getty

The analyst told Newsweek that the areas likely to experience the most dramatic price changes are those which tend to be more "boom and bust" —an economic term describing cycles of growth and decline.

"Phoenix is one that has always been brought to the forefront in prior cycles. [It] tends to be a bit more boom and bust, tends to attract more institutional capital, investor capital," McGill said.

He added that other markets that have similarly benefitted from the unusual pandemic demand are places like Boise, Idaho, and some of the Mountain states, where more investors suddenly entered and exited the market.

Changes in the availability of supply will also be a meaningful factor in determining where prices will drop the most significantly, said McGill.

"Areas that have had more planned supply and more deliveries coming over the next 6 to 18 months, depending on the product, clearly will have more risk from an oversupply situation," he said.

"So when you think about where builders have targeted their land investments, single-family built for rent have targeted their properties and multi-family as well, that's in a lot of the perceived faster growing areas of the country: Florida, Texas, Carolinas, Georgia, etc...So it just raises the risk of more competition when those projects come to market and therefore more risk on prices."

Things might get worse before they get better, with the Federal Reserve bound to increase interest rates again in a move that will certainly influence mortgage rates and make purchasing a home even more affordable for many.

But as unaffordability drives home sales down, experts expect the current hot housing market to continue cooling and slowing down. Many would certainly hope they're right.