When the Federal Reserve is making headlines, as it has been lately, questions can arise among potential homebuyers. The Fed’s moves affecting interest rates often spark fears that home-buying costs are rising beyond affordability. But it’s wise to consider one important factor: home prices are dropping.

The Current State of Housing Costs

Not for all homes, and not everywhere, but we have seen significant decreases in prices in major housing markets that are part of an overall trend. While nationally, according to the National Association of Realtors, home prices are still 8% higher than they were a year ago, the red-hot pricing reached a peak this past June and a cooldown period began, with prices falling about 6% by August. This is the biggest drop in nine years. The normalization of prices was all but inevitable, as historically low interest rates of the recent past collided with a high pandemic-era demand for housing to spark a nearly unprecedented surge in prices – between 30% and 40% – in just two years.

And the home price correction is spreading. Data from Zillow shows that between May 2022 and August 2022, home values fell in 117 of the 896 major housing markets that Zillow tracks. There were big drops in major metropolitan areas including San Francisco (down 7.8%) and San Jose (down 10.6%), and more moderate decreases in housing markets including Phoenix (down 4.4%), Denver (down 4.3%), and Las Vegas (down 2.3%).

Homebuilders are Lowering Their Prices

According to the National Association of Homebuilders’ Home Building Geography Index (HBGI) – which tracks building conditions across America – almost a quarter of homebuilders reported dropping their prices in response to changes in the housing market. Even though their costs (including land, labor, and materials) are rising, these builders are offering lower prices to buyers due to market conditions. There were drops in three of the HBGI’s key components: current sales conditions (down 3 points), sales expectations (down 1 point), and buyer traffic (down 1 point). These three drops add up to lower home prices for buyers.

So where are home prices headed? Experts are predicting that home prices will drop this fall, as will demand, and continue doing so in the months ahead.

Will this fall be when you decide to buy your dream home? Contact one of the loan originators at Luxury Mortgage to talk about the financing that can make that possible.

Luxury Mortgage Logo
We're dedicated to helping borrowers find the right home loan program for their situation. Contact us today for a free quote and consultation.

Call us today: (888) 379-0303

Four Landmark Sq. Suite 300
Stamford, CT 06901

Equal housing lender logo