If you’ve seen the news lately about home sellers slashing prices, it’s a great example of how headlines do more to terrify than clarify. Here’s what’s really happening with prices. The bottom line is home prices are higher than they were a year ago at this time, and they’re expected to keep rising, just at a slower pace.
But a recent article from Redfin notes:
“Price Drops Hit Highest Level in 18 Months As High Rates Dampen Buyer Demand.”
That might make you think prices are declining. While it’s true the latest report from Realtor.com also shows 16.6% of homes on the market had price reductions in May, up from 12.7% last May, that doesn’t mean overall home prices are falling.
Understanding Asking Price vs. Sold Price
The asking price, also known as a listing price, is the amount a seller hopes to get when listing a home. Sellers can’t just put any price tag on their house and expect it to sell for top dollar. Today’s buyers are savvy, and when they aren’t willing to pay a premium due to higher mortgage rates, sellers need to adjust.
Price reductions often happen because a home was overpriced or not generating enough interest. Mike Simonsen, CEO of Altos Research, says:
“Not only is the share of homes with price cuts elevated compared to one year ago, but more price cuts are happening each week than last year.”
The final sold price is what a buyer actually pays. Actual sold prices are still rising and expected to continue at least over the next five years.
What Does This Mean for Home Prices?
While there’s been an increase in price reductions recently, overall home values are not declining. It reflects moderating demand, with sellers adjusting expectations to match today’s market reality. Even with more price reductions, home values still grow annually, as they do nearly every year.
According to the Federal Housing Finance Agency (FHFA), home prices went up 6.6% over the last year:
Seller price reductions may indicate moderation in the coming months, but they aren’t a reason for alarm. As Redfin notes:
“. . .those metrics suggest sale-price growth could soften in the coming months as persistently high mortgage rates turn off homebuyers. For now, the median-home sale price is up 4.3% year over year to another record high. . .”
With inventory as tight as it is today, price moderation is more likely than declines.
Why This Is Good News for Buyers and Sellers
For buyers, more realistic asking prices mean a better chance of securing a home at a fair value. For sellers, adjusting asking prices leads to faster sales and smoother transactions.
Bottom Line
The uptick in price reductions is not a cause for concern. It reflects a market adjusting to new conditions. Home prices are continuing to grow, just at a more moderate pace.
