Are real estate prices dropping?

If you’ve bought or sold a home in the last few years, you’d likely understand what I mean when I say the real estate market been a whirlwind. Bidding wars, homes selling for well above their list prices, buyers waiving home inspections and appraisals, etc. However, we’ve recently started seeing mortgage interest rates skyrocket, causing buyers’ monthly payments to more than double in most cases. This has caused the housing market to become unaffordable for some buyers. Consequently, you may assume and wonder are real estate prices dropping? Not necessarily.

Wait, home values are still increasing?

Being a Chicagoland and Southern Wisconsin Realtor, I have not seen prices drop in my area yet. In fact, home values are still going up. Sure, cyclically prices drop in the fall and early winter, however by January we have been right back where we started with bidding wars and quickly escalating home values. Year over year, home prices are still increasing, not declining.

Why aren’t home prices falling?

Imagine you own a home and you were able to either refinance to capture the shockingly low interest rates of 2021 and 2022 or you bought a home during this timeframe. Your home value has increased dramatically so if you sold you would walk away with a huge profit. However, you’d be trading your low interest rate for a substantially higher one. Plus, although your home has increased in value, so have all the other homes you’d like to purchase. Combine the higher interest rates with the higher prices (and also property taxes) and you get a homeowner who is reluctant to move, especially those wanting to “trade up” into a bigger home. This reluctancy has led to a shortage in the number of homes for sale. Consequently, basic supply and demand will tell you that when the supply for something is low, and the demand exceeds the supply, prices will increase. To no surprise, this has played out accurately in the Chicagoland market.

When will real estate prices fall?

Unfortunately I left my crystal ball at home so I cannot promise that I can predict the future right now. However, if we follow the basic rules of supply and demand, once more people are willing to give up their low interest rates and sell, and the number of buyers hasn’t drastically increased as well, we should see prices plateau if not come down. It’s also important to note that if mortgage rates continue to climb, eventually we should hit a point where demand falls due to people not being able to qualify/afford the monthly payments. With that said, who knows when that time could be, or how much prices could come down (likely not much).

Have questions? Realtor Steven Johnson has answers.

If you are looking for a top rated real estate agent with the proper knowledge and drive to navigate the current housing market, call/text Steven at (847) 525-6121 or visit his website at StevenJohnsonRealEstate.com

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