Dropping Home Prices

What You Should Know about Dropping Home Prices

There’s a common misconception that home prices across the country have started falling rather quickly, but this simply isn’t true. In fact, prices are actually decelerating, which means something different entirely. Here, you’ll learn more about decelerating prices and what they might mean for you.

Dropping vs. Decelerating

A drop in home prices is a pretty obvious occurrence. It happens when people buying homes in a specific area pay less for homes or when sellers in that area receive less for their homes. There are all kinds of things that can drive home prices downward, including downward trends in the local economy, crime rates, and more. Deceleration is different, and it does not represent falling prices at all. It simply means that the prices of homes are no longer climbing at the same rate; in other words, a home that may gain $25,000 in value in a year may only gain $10,000 at a decelerated rate.

Can Deceleration Lead to Drops?

Another common question is whether decelerating home prices will eventually lead to drops that can dramatically influence housing markets locally and across the country. Ten years ago, the housing market went belly-up, and people were left broke. Many of these very same people become terrified when they see decelerations occur in markets where they own property, and rightly so.

The S&P Case-Shiller Home Index Price Index is an invaluable tool in this regard. It does show a clear deceleration, but prices aren’t flattening out just yet, and they certainly aren’t declining yet, either. In Washington DC, the momentum dropped by a mere 0.3%. Remember that this is not a drop in prices; rather, it is a drop in the rate of appreciation of homes in that area.

Washington DC is a Slow-Appreciating Market

Washington DC is one of the slowest appreciating out of the 20 markets shown in the Case-Shiller report. This was to be expected, though. Think about it like this – even though the prices here appreciate very, very slowly, the starting prices are much higher here than in many other areas nationwide. Simply put, due to demand and current prices, there’s far less room for appreciation in Washington DC.

What’s Driving the Downward Spiral?

Since 2008, the government has worked hard to help right the housing market by making housing more attainable and affordable. A decade later, that’s coming to an end, and the index of housing affordability is worsening a great deal due to things like increased interest rates. In places like Washington DC, it’s due to limited availability and “bidding wars” that take place between buyers vying for the same piece of property.

Whether these trends continue into the future remains to be seen, but things appear to be more stable here in Washington DC than they do in other parts of the country, for sure. Though there is worry that the deceleration will drive prices lower, that prediction is still impossible to make at this point. One thing is for certain, though: home values in the District are still well above average.

 

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