If you’re looking to buy or sell a house, chances are you’ve heard talk about today’s rising home prices. And while this increase in home values is great news for sellers, you’re probably wondering what the future holds. Will prices continue to rise with time, or should you expect them to fall?
To answer that question, let’s first understand a few terms you may be hearing right now.
- Appreciation is an increase in the value of an asset.
- Depreciation is a decrease in the value of an asset.
- Deceleration is when something happens at a slower pace.
It’s important to note home prices have increased, or appreciated, for 114 straight months. Pulsenomics recently surveyed over 100 economists, investment strategists, and housing market analysts asking for their five-year projections. The results suggest the market may see some slight deceleration, but not depreciation.
As the graph above shows, prices are expected to continue to rise, just not at the same pace we’ve seen over the last year. The expectation is that home prices will decelerate, but not depreciate.
What Does This Deceleration Mean for You?
These projections for what lies ahead is more in line with the historical norm for appreciation. According to data from Black Knight, the average annual appreciation from 1995-2020 is 4.1%. The forecasts are closer to that pace, which means we should expect a steep drop from our banner year of 2021 to a slightly above average 5-6% growth in 2022. Then we expect to fall back in line with recent historical norms, sitting around 4% each year.
So, if you’re a buyer don’t expect a sudden or drastic drop in home prices – most analysts agree that won’t be the case. Meanwhile, rates are on the incline, having climbed above an average of 3.0% (30-Yr FRM) last week.