When will home prices go down? Expert forecasts vary

High mortgage rates are making housing costs very expensive for many prospective buyers. The average 30-year fixed-rate mortgage sits at 7.92% as of October 17, 2023, whereas just over two years ago the average was under 3%. Meanwhile, the underlying cost of homes has also largely been on the rise. Five years ago, the average home in the U.S. sold for $285,274, according to Redfin. Now, the median price has reached $420,284.

However, the pace of increases have slowed down compared to the peak pandemic real estate gold rush. Over the past year, home prices have gone up by 2.9% according to the latest Redfin data.

That said, the specifics vary among local markets. In California, for example, median housing prices are projected to drop by 1.5% in 2023 compared to 2022. Yet home prices are then expected to rise by 6.2% in 2024, according to the California Association of Realtors. Meanwhile, prices in markets like New York are already dropping, though the specifics still matter. In Manhattan, for example, prices are down 3.5% year over year, but they're up by 0.4% in Brooklyn, according to Rocket Homes.

So what does this all mean for home prices in general? Buyers should know what to expect as they embark on the home purchase process. Below, we'll examine what three real estate experts think about the direction of home values.

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When will home prices go down?

As some markets like Manhattan have shown, home values have already started to fall in some areas. In Orlando, the market for Vivian Lehman, broker and owner of You Have Realty, home prices have dropped by around 9% since June, according to Redfin. And generally, pricing nationally is starting to fall more in line with what many real estate experts consider to be fair market values.

"Higher interest rates may be to blame, but some of that drop can be attributed to sellers and their agents no longer pricing homes at over market value as they did in 2022," says Lehman.

This trend toward lower prices could continue on a broader scale across the country depending on what happens in the mortgage market and with housing supply vs. demand.

"I think prices will drop when more inventory comes on the market, and that likely won't be until the end of 2024. Right now, high mortgage rates are keeping sellers in their homes as they don't want to trade a 3 or 4% mortgage for one that is nearly 8%," says Bess Freedman, CEO of Brown Harris Stevens.

"Likewise, high rates are keeping buyers away because they don't want to pay more on a monthly basis. I think once we have a more clear idea of what the Fed has in store in terms of rate hikes, and we understand how the economy and the jobs market will react, prices will start to head down," she adds.

However, not everyone agrees that lower mortgage rates will lead to lower prices, as that could increase buyer demand and exacerbate supply and demand issues.

"I firmly believe that home prices are not likely to decrease any time soon. The main driving force behind why I believe this is the limited supply of homes available for sale," says Dan Green, CEO of Homebuyer.

"If, or when, mortgage rates eventually decrease, it's likely to unleash a whole new group of buyers into the market, further intensifying the competition for available homes," he adds. "Lower rates make it cheaper to borrow money for a home, so more people want to buy. That higher demand means sellers can ask for higher prices, and that's why house prices tend to go up when mortgage rates drop."

However, an increase in housing supply could ward off these price increases. That's not to say that they'll go down, but the pace of any increases might be more measured than it's been in the recent past.

"As of this last quarter and the first quarter of 2024, I think we will still see some play in pricing as builder and resale home supply catches up," says Lehman. "Builders have indicated they are jumping back in to increase the supply of homes as inflation eases."

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How much will home prices drop by?

While some people like Green think the housing market conditions are primed for further price increases, others think there will be modest drops.

"By the end of 2024, I believe prices will drop but not by a landslide," says Freedman. Her conservative estimate is a 2% decrease, but much depends on what happens with factors like inflation and interest rates.

"Of course, all real estate is local so if you are looking in a market where homes have been severely overvalued, the price drops might be more severe. I am based in NYC, and we are already seeing prices start to come down, especially where all cash offers are concerned," she adds.

Similarly, Lehman thinks that even if there are some gains in home values, the pace won't match prior years.

"2022 was an anomaly, especially in Florida. Low supply and low interest rates fueled that wave," she says, pointing to the 9.6% annual gain in the U.S. that year, according to the National Association of Realtors.

"2023 isn't on track to match that and I don't think 2024 will come close," she adds.

The bottom line

Even with these predictions, however, it can be hard to figure out what will happen in the real estate market and find the perfect opportunity to buy. While prices and mortgage rates certainly matter, many real estate experts advise prospective homebuyers to consider what they can afford now and what their housing needs look like, rather than trying to perfectly time the market. Understand the rate environment, too. 

"Those borrowers who have been most successful don't pay attention to short-term increases and decreases in mortgage interest rates. Rather, it is best to focus on the long-term, purchase what you can afford today, participate in home equity growth, and refinance whenever possible in the future," Eric Fox, chief economist at Veros, recently told CBS News.