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What Could Cause Home Prices To Fall? |
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 Home prices have been on a tear (having great success over a period of time) for the past year+. Many home sellers are delighted to find out what a buyer is willing to pay for their home. Many home buyers are incredulous as to the price they have to pay for a house if they haven't been watching values adjust over the past year or two. But with all of these increases in sales prices of homes -- up 12% over the past year -- some buyers find themselves wondering if home prices will decline at some point in the future. Market fundamentals (supply and demand) seem to suggest that prices won't level out or decline anytime soon. There seem to be a nearly endless supply of buyers that are trying to buy homes (and often missing when there are multiple offers) and despite new listings starting to hit the market more frequently, inventory levels seem unwilling to meaningfully rise. So, if supply remains low and demand remains high, won't home prices stay steady or keep on rising? Yes, almost certainly. Here, though, are three reasons why home prices could fall over the next year or two -- even if none of them seem to be highly likely to occur... LARGE SCALE ECONOMIC CHANGES Certainly, if we see large scale economic changes, with the economy collapsing or unemployment skyrocketing, or a global trade war, etc., etc. then we could see a rapid decline in the number of buyers buying homes, which could cause home values to fall. But -- the economy has been through a lot in the past year+ and we didn't see that trickle down to a reduced number of buyers buying homes. So, this seems relatively unlikely. RISING MORTGAGE INTEREST RATES One of the reasons why today's home buyers often don't mind paying 12% more for a home than they would have paid last year is because of the low mortgage interest rates. Their mortgage payment often ends up being just about the same as it would have been a year ago. Rates are starting to trend upwards now, but slowly. If mortgages interest rates rose quickly, it would increase the monthly cost for a new buyer's mortgage payment, which could push some buyers out of the market, or reduce how much they could pay for a house. Thus, a large or sudden change in mortgage interest rates could cause home values to flatten out or even decline -- though it doesn't seem likely that we will see a large or sudden change in mortgage interest rates over the next year. EXCESSIVE NEW HOME CONSTRUCTION We all (hopefully) know that we have very low inventory levels in this area -- meaning that buyers have very few options of homes to buy at any given point. As I recently pointed out, new construction is perhaps the only way to meaningfully affect the available inventory. So, it's great to see some new building starting to happen in various areas of the County. If we saw a sudden, large, influx of new homes for sale, in a variety of price ranges, this could cause home values to flatten out or to decline. Of note, new construction at a large scale only in one price range might affect home values in that price range but wouldn't necessarily have a direct impact on home values above or below that price range. So -- are we likely to see home values fall over the next year or two? It doesn't seem likely -- but a combination of the factors outlined above could certainly slow down the current rapid ascent in sales prices. Recent Articles:
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Scott Rogers
Funkhouser Real
Estate Group
540-578-0102
scott@funkhousergroup.com
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Commonwealth of Virginia
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