If you think home prices nationwide are going to decrease significantly in the months to come, you better think again: A report from First American finds that home prices are very unlikely to crash the way they did in the 2008 housing crisis.
Today’s housing market is nothing like the housing market that preceded the Great Financial Crisis, the firm says.
“The housing sector has been under-built for over a decade, leading to a structural housing shortage,” says Odeta Kushi, deputy chief economist for First American, in a statement. “Since 2009, annual household growth has consistently exceeded new housing units added, whereas before 2009, the amount of new housing units added per year exceeded annual household growth. This cumulative supply-demand gap created the perfect story for rapid house price appreciation during the pandemic boom years. Although inventory has increased this year, helping soften house prices, it remains below historical levels, especially in some regions such as the Northeast and Midwest.”
Lack of inventory remains the main reason why home prices won’t be falling anytime soon.
“In today’s environment of elevated mortgage rates and economic uncertainty, buyers are pulling back and sellers are adjusting their price expectations, so house prices naturally are softening,” Kushi adds. “However, the structural shortage of supply relative to demand will put a floor on how low prices can go. While there will be significant regional variation, the underlying fundamental conditions of the national housing market support a natural moderation of house prices rather than a sharp decline.”
A slight softening in home prices, however, could go a long way toward stimulating the housing market – especially when combined with a drop in mortgage rates.
Affordability across the nation improved by 4.4% annually in May, driven by falling mortgage rates, slowing nominal house prices, and rising household incomes, First American says in the report.
Preliminary national data from June and July indicates affordability has continued to improve, reaching a level last seen in October 2024 and marking a 10% increase in affordability from the recent low point in October 2023.
Photo: Dillon Kydd