For the past year, real estate experts, pundits, and that guy you sat next to at the bar/bus/movies have been saying that home prices are poised to drop after several years of previously unthinkable gains.

But now that home prices are finally coming down, just how low will they go? That’s the million-dollar question for frustrated homebuyers, worried sellers, and homeowners who would prefer that their home values continue rising.

On Memorial Day, billionaire Twitter owner Elon Musk tweeted, “Commercial real estate is melting down fast. Home values next.”

However, housing professionals don’t expect any steep drops that will provide house hunters with much relief. Despite higher mortgage interest rates, there are still legions of would-be buyers in the real estate market competing for an extremely limited number of homes for sale.

Even as mortgage rates hovering around 7% push home prices down a little from last summer’s peaks, prices are expected to remain strong as a result of the housing shortage.

“Most likely we’ll see a little bit of decline followed by some months of subpar growth,” says Realtor.com® Chief Economist Danielle Hale. “I don’t anticipate double-digit price declines. I expect prices to mostly move sideways over the next year or so.”

In February, sale prices for existing homes, which exclude new construction, began slipping year over year, according to National Association of Realtors® data. Prices slipped 0.2% annually in February, 0.9% in March, and 1.7% in April. Prices for newly constructed home sales began dropping in April, falling 8.2% year over year, according to federal data.

Economists prefer year-over-year comparisons to account for normal, seasonal fluctuations in the housing market. For example, home prices are typically highest in the spring and summer. They traditionally fall as the weather cools down.

List prices are expected to go negative this month as sellers accept the fact that they’re not getting the prices they initially wanted. They fell 0.9% for the week ending June 10, according to the most recent Realtor.com data. Lower sale prices signal that sellers are pricing their properties aspirationally, but are coming down a little to make the sale.

“What that really shows is that sellers are catching up to where buyers are,” says Hale. “Sellers are willing to accept somewhat lower prices. In the next few weeks, they’re going to be starting with a lower asking price.”

Even though prices might be falling nationally, they’re not going down in every market or for every home. In some parts of the country, prices are shooting up. And the most desirable homes continue to receive multiple offers.

“Even if someone is in a market where they see the local home prices are going down, that doesn’t mean that every home in every neighborhood is seeing prices drop,” says Ali Wolf, chief economist of the housing market consultancy Zonda. “If it’s in a good school district, has curb appeal, and is a turnkey home, even in the market [seeing] prices going down, those home prices may keep going up.”

How low will home prices go?

Housing economists don’t expect any big price drops, certainly nothing like what happened during the Great Recession when the housing bubble popped. Most anticipate single-digit declines.

Realtor.com predicts a small decline, similar to the 2% year-over-year drop expected by NAR. But while Realtor.com expects prices will mostly flatten out next year, NAR foresees them rising by about 3% in 2023.

“We don’t expect price declines to remain long,” says NAR Senior Economist Nadia Evangelou.

Housing consultancy Zonda expects home prices will be about 3% lower nationally this year than they were in 2022.

“If we’re wrong, we’ll probably be too positive. It could be down more than what we’re calling for,” says Zonda’s Wolf. “The key things that will determine where home prices go will be [the housing] inventory, the unemployment rate, and mortgage rates.”

But Mark Zandi, chief economist of Moody’s Analytics, anticipates a larger, more prolonged drop in prices. He predicts home prices will fall 8.5% over a three-year stretch, from the peak last July through early 2025. Buyers shouldn’t expect big price cuts at the lower end of the market, where the competition is greatest for a very limited number of more affordably priced homes.

The declines won’t erase the years of previously unthinkable price gains during the COVID-19 pandemic.

“Most experts don’t expect prices to revert back to 2019 or early 2020 levels,” adds Wolf. “It’s important to keep a home price correction in context. We experienced a historic run-up in prices. A 3% or 5% drop is not catastrophic.

“It does not mean there’s a housing bust and millions of people are going to lose their homes,” she says.

Lower home prices won’t benefit buyers all that much

Homebuyers shouldn’t be popping the Champagne just yet. Lower prices likely won’t make much of a dent in their bottom lines.

With mortgage rates hovering around 7% for 3o-year fixed-rate loans, monthly mortgage payments will likely remain challenging. Today’s buyers will shell out about 21% more each month on their mortgage than they would have a year ago. Their payments are more than double what they would have paid three years ago.

(The analysis compares national median list prices in May 2023, May 2022, and May 2020 using Realtor.com data as well as average 30-year fixed mortgage rates for the last week of May from Freddie Mac. It also assumes buyers put down 20% and does not include property taxes, insurance, and other costs.)

“In most places, people are not seeing their mortgage payments drop,” says Hale. “Homebuying costs are not really going to go down.”

Home prices have fallen in some markets, are rising in others

Real estate, of course, is all about location. Some parts of the country, such as the more expensive Western region, have already experienced steep price drops. These areas might have already bottomed out, and some are already seeing prices rebound.

Prices might also be weaker in the Southeast. While the region has attracted scores of new residents, it has also increased its supply of new housing. Builders have more land available and fewer building restrictions to contend with in the area.

“There’s only a certain amount of people who can continue to purchase homes at the prices that they’re at,” says Zonda’s Wolf. “We may see prices come down to match incomes.”

Meanwhile, prices are still rising in some cheaper Midwestern and Northeastern markets. For example, in the Cincinnati metropolitan area, median list prices were up 19.9% year over year in May, according to Realtor.com data. They rose 19.2% in Rochester, NY, and 17.2% in Hartford, CT.

“It’s going to depend on where you live,” says Wolf. “Most markets will probably see prices come down a little bit year over year.”

Should homeowners who bought at the peak be worried?

Those who purchased homes at the peak shouldn’t worry too much, especially if they don’t plan on selling anytime soon.

Homeowners lost about 0.7% in equity in the first quarter of this year, according to real estate data firm CoreLogic. That’s roughly $5,400 per homeowner with a mortgage.

The rule of thumb is for folks to stay in their properties for at least five years so they don’t end up in the red. This accounts for minor market fluctuations as well as the closing costs that sellers inevitably wind up paying in a sale. Those who waited out down markets have historically recouped their lost home values and then some.

“There can be short-term changes” in home values, says Keith Gumbinger, a vice president at HSH.com, a mortgage information website. But “home prices generally recover over time.”

What could lead home prices to rise

Despite the smartest minds in the business expecting home prices to fall, there’s no guarantee it will happen.

If mortgage rates were to fall below 5%, that’s considered to be the tipping point. More sellers would likely put their homes up for sale, and there would be an increase in buyers in the market.

That extra demand, and the ensuing bidding wars and offers over asking price, would be likely to push prices back up again.

“There are so many factors that could influence what happens with home prices,” says Wolf.

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