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How Low Will Home Prices Go?

Updated: Jan 10

By Ryan Taaffe, REALTOR® | Keller Williams Realty


Lately, everyone has been asking: how low will home prices go? And, of course, when will the next “crash” happen? Many believe this is inevitable due to sustained unemployment; others look at the Great Recession as a guide, equating “recession” with “housing crisis.” However, it isn’t that simple, as there are several different factors at play today.


Unemployment Rate

The most obvious and concerning factor this time around is the high rate of unemployment. Though it has improved since April, it remains elevated, and millions of Americans have been unable to keep up with their mortgage and rent payments. Fortunately, mortgage forbearance and a federal eviction moratorium — just extended through the end of the year — have enabled many Americans to stay in their homes. Even if homeowners remain unemployed, it doesn’t mean they all will go into default, because…


Debt and Equity

Unlike in the Great Recession, the housing market is not driven by subprime mortgages and highly leveraged homeowners. In fact, the average household debt-to-income (DTI) ratio is at a four-decade low, and household equity is at a three-decade high. According to the “dual-trigger hypothesis,” a foreclosure requires both economic shock (e.g., job loss) and low equity. If homeowners have sufficient equity, they can pursue a standard sale or refinance, thereby avoiding foreclosure. In 2001, unemployment rose without a comparable rise in foreclosure activity, largely due to high household equity. Foreclosures may very well increase to some degree, but…


Housing Market

In many parts of the country, including Northern Virginia, there is a shortage of homes for sale. Significant demand for these homes has led to a hyper-competitive market where the typical home is on the market for only a week. Many sellers receive more than one offer; sometimes, they get more than ten. Northern Virginia needs more housing inventory, so even as new homes come on the market, prices may not be impacted significantly. It will take a major shift for this area’s real estate market to become oversaturated with available housing.


In conclusion…

It is an unpredictable time, but based on the current market conditions and data from previous recessions, a sharp decrease in home prices does not appear to be imminent. This is far from a guarantee that your home will double in value every year; prices could level off as inventory rises and as the summer market comes to a close. Forecasts may change as the impacts of COVID-19 change and as new government policies are put into effect.

Buying a home amid so much uncertainty can be a daunting task — especially if you are a first-time buyer. Fortunately, real estate values have historically risen over the long term, so if you plan to stay put for a while, there’s a good chance you’ll still benefit from appreciation if you buy now.

Do you have thoughts or questions on this analysis, the homebuying process, or anything else about Northern Virginia real estate? Let me know!

Ryan Taaffe, REALTOR® | Keller Williams Realty


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