September 27th, 2018 10:17 AM by Tenby Dahman
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 values.
Many of these headline writers will confuse “softening home prices” with
“falling home prices,” but there is a major difference between the two.
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 prices).
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.
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.