Are Housing Values Dropping Now?

August 10th, 2022

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Potential homebuyers who contact me for a mortgage are now frequently asking if they should wait to buy a home.  The implication is that people are now worried that housing values are going to fall, so why buy now? Isn’t it smarter to wait? Maybe, maybe not. It is understandable why everybody is asking the question, “are housing values dropping now?”

Markets are very local. Don’t assume that real estate is going to fall across the board in every community, in every town, in every city across the U.S. When housing values started to correct in general in 2006 through 2008, some markets declined a great deal, some declined a small amount, some simply stalled out with no losses nor price increases, and some had small price gains. That makes it hard to say what you should do in your local market without being knowledgeable in that market and consulting local experts in that market. That doesn’t mean speaking only to residential realtors, who can have a bullish confirmation bias towards real estate. Also talk to appraisers, your neighbors, commercial realtors, business owners, your  local Chamber of Commerce, etc. That is a lot of work! But if you really want to know what’s going on in your local economy and housing situation, without generalizing, you must do a lot of work.

There is a housing index where you can consult historical data and track housing values to see if housing values are dropping or rising. It is the S&P Dow Jones Indices LLC, S&P/Case-Shiller U.S. National Home Price Index [CSUSHPINSA]. You can see the national chart by clicking here, which is retrieved from FRED, the Federal Reserve Bank of St. Louis.

They also have data for various cities, like Washington DC real estate values.

*Citation: S&P Dow Jones Indices LLC, S&P/Case-Shiller DC-Washington Home Price Index [WDXRSA], retrieved from FRED, Federal Reserve Bank of St. Louis

And you can also see information for Los Angeles real estate values.

*Citation: S&P Dow Jones Indices LLC, S&P/Case-Shiller CA-Los Angeles Home Price Index [LXXRSA], retrieved from FRED, Federal Reserve Bank of St. Louis

Dallas TX real estate values

*Citation: S&P Dow Jones Indices LLC, S&P/Case-Shiller TX-Dallas Home Price Index [DAXRNSA], retrieved from FRED, Federal Reserve Bank of St. Louis

San Francisco CA real estate values

*Citation: S&P Dow Jones Indices LLC, S&P/Case-Shiller CA-San Francisco Home Price Index [SFXRSA], retrieved from FRED, Federal Reserve Bank of St. Louis

And they have many other cities that they track that you can review housing values to look for clues to see if values in your city are dropping or increasing.

If you see a market that has had a spike in values recently, that may tell you that the market is overvalued. But if the market has had a slow and steady climb, buying homes there may be a safer bet. That’s not to say that a market that has had a spike in values recently can’t continue to climb, however.

MORE INFORMATION ON HISTORICAL REAL ESTATE VALUES

Trying to time the real estate market, or the market for any asset, is usually difficult to impossible. Let’s discuss what happens if you decide to wait. It takes a long time for a market’s path to reveal itself so you would probably have to wait at least two years.

If you wait two years to buy, what do you lose in rent paid to a landlord? What do you lose in appreciation if the market doesn’t go down? If real estate values do drop, will the drop in value exceed the rent cost?

As you are renting for the next couple of years will your rent cost increase?

Will interest rates rise? Will the hoped for drop in value be offset by interest rate increases when you eventually do buy a home? If you wait to buy and rates are higher when you do eventually buy a home, and your mortgage payment is $400 a month more than now, that is $4,800 a year extra cost. If you own the home for a decade, that’s a $48,000 increase in the cost of owning the home. What if the home only drops $25,000 in value during the period of time you were waiting to buy? Even if it drops $50,000 in value you have only broken even versus the increase in monthly payment due to an interest rate rise. Even if it drops $75,000 in value, was it worth the savings when compared to the $48,000 cost increase to wait a few years to buy, and miss out on tax breaks, homeownership, and living in the area that you really prefer to? There are a lot of hypotheticals to consider.

What if housing values only drop slightly? Or what if the market just stays flat and it doesn’t drop at all? Then you will have waited for no good reason.

One would need the perfect storm of circumstances for waiting to buy a home to pay off. If interest-rates stayed the same or dropped, and housing values dropped significantly, and your rent did not increase, and if your rent cost was moderate to begin with; then waiting might make sense.

Why wait? If you need a house, then buy a house. Make it one you love, and “buy and hold”. If you buy a house that you love, it should be one that you could live in for a long time if needed. Or maybe you’ll plan to stay there forever by design? Owning a home for a long time helps to make short term market fluctuations much less important, or not important at all.

If you only want a house, like a second home/vacation home, or investment property, or are thinking you might possibly want a house with a little more square footage…then you can afford to hold off since it’s just a want.

Second home/vacation home purchases may not be wise anyway unless you can spend a lot of time in that location, and/or can derive rental income through Airbnb or a similar service. But will the Airbnb rules change, or will that market change, will vacation rentals slow or dry up? Will you feel like you always have to take vacations where your second home is located, as opposed to exploring new areas?

As you can see there are a lot of considerations when buying real estate. When market momentum has shifted and you’re wondering if it’s going from a sellers’ market to a buyers’ market, it’s right to consider when is the best time to buy a home. But in many instances real estate prices are sticky and won’t go down fast enough to offset a lot of the issues I’ve mentioned above.

To contact me to discuss housing values in your market, the timing on when you should buy, or other mortgage questions, click here to schedule a call or you can email me directly.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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