If you keep tabs on your property value and have noticed it’s dropping lately, you’re not alone.
“According to the latest statistics, the median sales prices of homes throughout the country have dropped 1.7% in April 2023, compared to the prior year,” said Jonathan Rundlett, regional owner at EXIT Mid-Atlantic. “The National Association of Realtors had indicated that existing home sales dropped 3.4% in April compared to last year. Much of this can be attributed to many would-be sellers waiting on the sidelines expecting interest rates to decrease.”
He continued, “In general, home values will decline if the supply of houses is greater than demand. A balanced market is considered to have six months of inventory available for sale. As the market heated up during the pandemic, the supply of houses dropped below one month of inventory, but as the market has eased some, current inventory is between one to two months supply.”
To find out more about why home values decline and whether or not you should panic, GOBankingRates interviewed Kerry Sherin, consumer advocate at Ownerly, a leading home valuation company and consumer. Here’s what she had to say.
In General, Why Do Home Values Decline?
Home values decline for various reasons, including the following.
“The state of the economy significantly affects how much a home is worth,” said Sherin. “During periods of economic recession or downturn, such as the global financial crisis of 2008, home values tend to decline. High unemployment rates, stagnant wage growth, and reduced consumer confidence can all lead to decreased demand for homes and lower prices.”
Sherin also said that when the supply of homes exceeds buyer demand, it can lead to a decline in home values. “Overbuilding, speculative investment or a decline in population in a specific area can all contribute to oversupply,” she said. “As sellers compete for a limited number of buyers, an excess supply of homes puts downward pressure on prices.”
Location and Neighborhood Changes
“Location and the nearby neighborhood have a big impact on how much a house is worth,” Sherin said. “If an area sees negative changes, such as an increase in crime rates, a decline in local amenities or the deterioration of infrastructure, it can negatively impact home values. Changes in zoning laws or the introduction of undesirable developments nearby can also lead to a decline in home values.”
Another reason your property value could drop, according to Sherin, is due to natural calamities such as hurricanes, floods, earthquakes and wildfires, which have the potential to severely damage both homes and infrastructure. “These events can have an impact not only on the physical state of homes but also on the perceived risk and desirability of residing in specific places,” she said. “Such incidents may result in lower home values in the affected areas.”
Government Policies and Regulations
Other reasons for a dip in property value could be due to government policies and regulations. “Changes in tax laws, zoning rules, or housing policies can all have an impact on home affordability and desirability,” Sherin said. “For example, if property taxes rise dramatically, buyers’ purchasing power and demand fall, resulting in dropping home values.”
What Could the Current Home Value Dip Mean Going Forward?
“After a few years of uncertainty, some predictions say the year 2024 is projected to bring more stability to the housing market,” Sherin said. “Because mortgage rates are falling quicker than projected, housing prices are expected to remain basically steady in 2024. This is wonderful news for purchasers who have been waiting for the right time to enter the market.”
Sherin said that predicting the housing market for the next five years is difficult because of the various factors involved, including economic development, interest rates, population expansion and government regulations.
“However, certain forecasts can be made based on present trends and projections,” she said. “The continuing urbanization of people is one probable development that could affect the housing market. The housing market is projected to undergo major changes in the next few years, with a variety of variables such as shifting demographics, rising technology and the impact of climate change driving demand and supply.”
Over the long term, Sherin said that real estate markets tend to go up in value. However, she cautioned that that trend could change based on local conditions and economic factors.
“If past patterns hold true, homeowners who went through a drop in their home’s value may see it rebound and possibly rise above its previous level,” said Sherin. “But it’s important to remember that real estate markets are complicated and affected by many things, which makes it hard to make long-term forecasts.”
Should People Panic Over a Drop in Home Value?
Sherin acknowledged that a drop in one’s property value could be a cause for concern. However, she said it’s important to keep a level head and make an effort to adopt a long-term perspective.
“Real estate markets experience cycles of ups and downs; despite the fact that a decline in value can be disheartening, it is essential to remember that the market can recover over time,” she advised. “Examining the local market conditions in greater detail is also essential. Local factors have a significant impact on the real estate market, and grasping the dynamics of your region can provide valuable insights. To evaluate the market’s future prospects, gather data on factors such as job growth, infrastructure development and population trends. Avoid making rash decisions based on short-term fluctuations alone. It may not be in your best interest to hastily sell your home or make significant financial decisions. Instead, evaluate your options and contemplate the potential long-term repercussions before taking action.”
Sherin also recommended concentrating on factors within your control.
“Maintaining and improving your property’s condition and enhancing its curb appeal can have a positive effect on its value,” she said. “Consultation with a reputable real estate agent or appraiser can also provide an objective valuation of your property’s worth and advice on the best course of action. During this time, it is essential to remain calm, acquire information, and seek expert advice in order to make informed decisions.”
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