Are Home Prices Softening or Are They Falling?
We are beginning to see reports that more housing inventory is coming
to the market and that buyer demand may not be increasing at the same
pace it did earlier this year. The result will be many headlines written
to address the impact that these two situations will have on home
Many of these headline writers will confuse “softening home prices”
with “falling home prices,” but there is a major difference between the
The data will begin to show that home values are not appreciating at
the same levels as they had over the last several years (softening
prices). This does NOT mean that prices are depreciating (falling
Here is an example: Over the last several years, national home values
increased by more than 6% annually. If you had a home worth $300,000 at
the beginning of the year, it would be worth $318,000 by year’s end. If
the appreciation rate “falls” to 4%, that $300,000 house would be worth
$312,000 at the end of next year – a $6,000 difference.
The price of the home did not fall. It just didn’t increase at the level it had the previous year.
Appreciation rates are projected to end this year at approximately
5%, and then drop to somewhere between 4-5% next year. This drop in
appreciation rate will cause home price increases to soften.
Again, this does not mean that home prices will depreciate, but instead that they will appreciate more slowly.
Be careful when reading headlines that discuss home values. Some
headline writers will be legitimately confused and will use the word falling in place of softening.
Others will realize that the headline “Home Prices are Falling!” will
get more clicks than “Home Prices are Softening” and will intentionally
write the more compelling headline. Read the article. If the word depreciation is not mentioned, home values are not falling.