If you've been following the news about home sellers slashing prices, it’s a great example of how headlines often terrify more than they clarify.
Here’s what’s really happening with home prices. The bottom line is that home prices are higher than they were a year ago, and they’re expected to keep rising, though at a slower pace. A recent article from Redfin notes, “Price Drops Hit Highest Level in 18 Months As High Rates Dampen Buyer Demand.” This might make you think prices are declining. While it’s true that the latest report from Realtor.com shows 16.6% of homes on the market had price reductions in May, up from 12.7% last May, it doesn’t mean overall home prices are falling.
Understanding Asking Price vs. Sold Price
The key is knowing the difference between the asking price and the sold price. The asking price, or listing price, is what a seller hopes to get for their home. However, sellers can’t just set any price and expect it to sell for top dollar. Today’s buyers are savvy and, with higher mortgage rates straining their budgets, sellers need to adjust their prices. That’s what’s happening now. Based on market factors and the offers sellers receive, the asking price can change. If a seller isn’t getting much interest, they might revise the price to attract buyers – sometimes because they overpriced it initially. These price reductions can make headlines sound like home prices are dropping.
Mike Simonsen, CEO and Founder 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.” On the other hand, the final sold price is the amount a buyer actually pays when the transaction is complete.
Here’s the most important thing to note: actual sold prices are still rising and are expected to continue doing so for at least the next five years.
What Does This Mean for Home Prices?
While there’s been an increase in price reductions recently, it doesn’t mean overall home values are declining. Instead, it’s a sign that demand is moderating. As a result, sellers are adjusting their expectations to align with today's market reality. Even with more price reductions, home values are still growing annually, as they do nearly every year in the housing market.
According to the Federal Housing Finance Agency (FHFA), home prices went up 6.6% over the last year. This map shows how prices rose almost everywhere in the country, indicating that the market is not in decline. So, while seller price reductions are often a leading indicator that prices may moderate in the months ahead, this isn’t necessarily a reason for alarm. The same article from Redfin also states: “... 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 much more likely in the coming months than price 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 price. It also means you can enter the market with more confidence, knowing prices are stabilizing rather than skyrocketing. For sellers, understanding the need to adjust your asking price can lead to faster sales and fewer price negotiations. Setting a realistic price from the start can attract more serious buyers and lead to smoother transactions.
Bottom Line
While the uptick in price reductions might seem troubling, it’s 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.