What Will It Take for Home Prices To Come Down?

Many prospective buyers are wondering if home prices are going to drop anytime soon. In fact, some may even be hoping for a market crash to make homes more affordable. However, experts overwhelmingly agree that a dramatic drop in home prices isn’t likely to happen. Here’s why.

The core issue comes down to the classic principle of supply and demand: there are simply more people looking to buy homes than there are homes available for sale. Let’s dive into why this imbalance makes it unlikely that home prices will fall significantly in the near future.

Prices Depend on Supply and Demand

Like any market, the housing market operates on supply and demand. When demand exceeds supply, prices go up.

In the U.S., there’s a housing shortfall of several million homes. This persistent mismatch between the number of buyers and available homes is the primary reason why prices remain elevated. As David Childers, President of Keeping Current Matters, explains:

“The main driving force on pricing is the limited amount of inventory in most markets across the country. That issue is not going to be solved overnight or in the next twelve months.”

How Did We Get Here?

The current housing shortage is the result of over 15 years of underbuilding. After the 2008 housing crisis, homebuilders significantly reduced their activity. While construction has increased in recent years, it still hasn’t caught up to demand.

Visual: Housing Construction Over the Years

This lack of new construction means we’re still facing a multi-year deficit in housing supply. According to AmericanProgress.org, even with recent growth in new builds, homebuilders are barely keeping up with today’s demand – let alone addressing the years of underbuilding.

As long as the housing shortage persists, home prices are unlikely to drop significantly.

What About Next Year?

Most experts predict home prices will continue to rise in 2025, but at a much slower and more sustainable pace compared to the rapid increases of recent years.

Visual: Forecasted Home Price Growth

It’s important to note that real estate is local. While national trends provide a general overview, your local market may behave differently. For example:

• Markets with more inventory may see slower price growth or slight declines.
• Markets with tight inventory will likely see continued price increases.

That’s why it’s essential to work with a local real estate expert who understands your specific market. They can provide insights into how supply and demand are impacting prices in your area.

Bottom Line

If you’re wondering what it will take for home prices to come down, the answer lies in the imbalance between supply and demand. With inventory still limited in most markets, home prices are likely to remain steady or rise, albeit at a slower pace.

To get a clearer picture of what’s happening in your local market and how it affects your homebuying or selling goals, connect with a local real estate professional. They’ll help you navigate the market and create a plan that works for you.