If you’re trying to figure out what’s going on with home prices, you’re not alone!

An ever-increasing number of home sellers are reducing list prices, but reports remain of continued home price appreciation.

Are home prices coming down, still going up, or actually doing both at the same time?

A potential buyer I spoke to last week remarked that he keeps seeing reports that home prices are continuing to appreciate, but he’s receiving property email alerts of new price reductions on a daily basis. How can that be?

It’s confusing to say the least.

To learn more about why this is happening watch the following video or continue reading below;

The Home Price Frenzy Explained

Regardless of what a homeowner, or real estate agent, thinks, a home is worth as much as a qualified buyer is willing to pay.

Currently, we are experiencing a situation where buyers are not willing to pay the same as they were just a few months ago.

That shouldn’t really come as a surprise to anyone because we all knew multiple offers and bidding wars couldn’t last forever, especially in the face of rapidly rising mortgage rates, not to mention 40-year high inflation.

Under normal market conditions, an agent and seller would review the most recent market activity to determine a list price. Comparable homes that sold within the past 3 to 6 months would be given the most consideration, while homes under contract and currently listed would be examined to show how the market is trending.

Based on that criteria, let’s assume a list price of $550,000 was established.

Due to market conditions, the home received multiple offers and was eventually sold for $675,000. Did values in that neighborhood just increase by 20%+ in 30 to 45 days or was the value actually $550,000 but the home was worth $675,000 to that particular buyer at that particular time?

Regardless, the next person to sell in that neighborhood will use the $675,000 sale price as their comparable and a new bar will be set. That’s fine while you are in a frenzied environment, but what about when the frenzy stops?

That is exactly what we are experiencing right now.

With higher mortgage rates and overall economic uncertainty, buyers are either unable or unwilling, to pay these bloated prices.

As a result, sellers who truly need to sell are having to reduce prices in order to generate an offer.

The “bloat” is being removed and home prices are coming back to where they would have been had the frenzy not happened in the first place. Where home prices eventually settle remains to be seen.

Since price appreciation is measured year-over-year, even though prices are currently being reduced, homes are still selling for more than they were a year ago. As such, we are seeing an increasing number of price reductions while still seeing price appreciation overall.

Price Reductions are Normal

It’s important to remember that price reductions are a normal part of the housing market.

Here is a look at the percentage of homes receiving a price reduction before going under contract over the past 3 years;

While the percentage of homes receiving a price reduction has certainly increased rapidly this year, the percentage of homes receiving a price reduction remains below what we saw in the summer of 2020 and in the second half of 2019.

Home Prices Continue to Climb

While the pace of appreciation has certainly moderated over the past couple of months, Frisco still experienced 27.9% appreciation year-over-year in June.

Bottom Line

Where there is a great deal of confusion, uncertainty, and conflicting opinions out there, my goal is to provide you with the latest information based on the actual data.

What the data is telling us right now is that we should expect local housing market conditions to continue to normalize and year-over-year price appreciation to moderate. While there is nothing in the leading indicators to suggest that year-over-year home prices will fall, I wouldn’t be surprised if we see no, or single-digit, appreciation next year.

If you’d like to stay up to date on the latest market conditions and trends consider subscribing to our weekly market report. The report will give you an at-a-glance view of how our market is trending. You can view the latest conditions for any city/zip code in the country and subscribe to have the report delivered directly to your inbox each week.

Have additional questions or a specific situation you’d like to discuss in more detail? Give us a call at 469-296-2530 or email Contact@S2RealEstateTeam.com