Will prices level off this year?
Data from the FHFA show that the average home price in the second quarter was up 5% from last year. Prices were up 8% in the first quarter and 12% in the fourth quarter of 2022, so there’s a definite slowing trend, and we can expect prices to level off this year.
But will they come down after that? And if so, how soon? I think the answers are “yes” and “very soon,” because that’s already happening in some major markets.
Although the pandemic created special conditions under which prices began to soar, the underlying force that pushed them higher is the flow of population. As that flow ebbs, the justification for super-high prices dissipates and markets will slowly (in real estate, price adjustments always happen slowly) return to the typical balance between prices and income.
Our table shows that the West leads the way in this readjustment process, largely because the pressure of population flow happened there first. The flow toward the South was more recent, but that just delays the process. Note that the lower prices in the Western markets are not the result of any economic slowdown; recent job growth in these markets pretty much matches that of the Eastern markets.
Strong population and job growth still provide support for home prices, but not at the current super-high levels. The readjustment process will take a while, but the Western markets make clear that it’s already started.