A ‘Housing Recession' Won't Bring Home Prices Down, Economist Says: Here's Why

Despite talk of a "housing recession," don't hold your breath waiting for home prices to suddenly decline any time soon. In fact, prices are expected to grow through 2023, according to several housing forecasts.

The market does seem to be cooling, however. With higher mortgage costs, U.S. home sales are down over 20% from a year ago. And last month, the median price for an existing home in the U.S. dropped from a record high of $413,800 to $403,800, according to the National Association of Realtors (NAR).

But considering that median home prices have soared by nearly 36% since the pandemic began, a one-month price reduction of around 2.4% can be seen as more of a market adjustment than a significant decline in value. 

Housing prices are still expected to be up 11% for 2022, followed by 2% in 2023, according to NAR's most recent forecast. This follows similar forecasts by Freddie Mac, Fannie Mae and Zillow, which predict positive — albeit slowing — price growth in 2022 and 2023.

And despite the decelerating price growth, median home prices are still up 10.8% from a year ago, according to NAR's data. For context, median home prices have risen by roughly 4.5% a year since 1992, according to Federal Housing Finance Agency data.

"This isn't a recession in home prices," says Lawrence Yun, NAR's chief economist. "A price decline on a nationwide basis is unlikely."

That's because demand for homes remains strong, primarily due to strong employment numbers and an "inadequate" supply of homes.

However, for some local markets that experienced extraordinary price growth in the last couple of years — like in California — a decline in price is possible, says Yun. But "those price drops will be very short in duration," because decreases will be viewed as "a second chance opportunity" by buyers who were previously priced out of the market.

This already seems to be happening in some real estate markets where prices surged during the pandemic. In July, San Jose home prices declined by 4.5%, Phoenix by 2.8%, San Francisco by 2.8% and Austin by 2.7%, according to the latest data provided by Zillow.

That said, "there's nothing to suggest prices will decline in more affordable markets," says Yun. Of course, forecasts don't account for unforeseen events, like geopolitical conflicts or worsening supply chain issues, he adds.

It's possible that home prices could decrease, but "with stabilizing mortgage rates, and some job creation, home prices should also stabilize," Yun says.

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