Are Home Prices Stabilizing or Are They Dropping?
We have had many people ask where home prices are going. We have had good appreciation since the dark days of 2006 and some are concerned that we are at the end of that run. So, we though we would share our thoughts on that question.
Many of these headline writers will confuse “softening home prices” with “falling home prices,” but there is a major difference between the two. The data will begin to show that home values are not appreciating at the same levels as they had over the last several years (softening prices). This does NOT mean that prices are depreciating (falling prices). Here is an example: Over the last several years, national home values increased by more than 6% annually. If you had a home worth $300,000 at the beginning of the year, it would be worth $318,000 by year’s end. If the appreciation rate “falls” to 4%, that $300,000 house would be worth $312,000 at the end of next year – a $6,000 difference. The price of the home did not fall. It just didn’t increase at the level it had the previous year. Appreciation rates are projected to end this year at approximately 5%, and then drop to somewhere between 4-5% next year. This drop in appreciation rate will cause home price increases to soften.
Again, this does not mean that home prices will
depreciate, but instead that they will appreciate more slowly.
Bottom Line
Be careful when reading headlines that discuss home values. Some headline
writers will be legitimately confused and will use the word falling in place of softening. Others will
realize that the headline “Home Prices are Falling!” will get more clicks
than “Home Prices are Softening” and will intentionally write the more
compelling headline. Read the article. If
the word depreciation is not mentioned, home values are not falling. |
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