Home prices are predicted to fall by at least 5% nationwide this year, with some cities seeing declines of as much as 18%, according to a new study from the University of California San Diego.
The study's findings are in line with other data showing home prices have already started to fall in several cities across the country. Many housing experts are also forecasting more price cuts at least through the first part of 2023, if not longer.
If the predicted price drops come true, it could help ease the housing affordability crisis faced by many potential buyers that arose as a result of high mortgage rates, high demand and a shrinking inventory of homes for sale.
What the research says
The home price predictions are based on a new forecasting model developed by UCSD that uses online search activity to track buyer interest. The model tracks keywords related to the term "buying a house." The data is then compared to information related to the number of home tours and written offers made, allowing researchers to make short- and long-term price forecasts.
“It’s one of the purest forms measures of potential demand that you can get because the first thing you do when you’re looking for a house or interested in buying a house, is to go to the internet and look at what is available,” said Allan Timmerman, professor at the Rady School of Management at UCSD and one of the authors of the study.
- The housing price model has proven to be 70% accurate in its forecasts and focuses on buyer demand in specific cities by tracking search activity.
- Some of the cities with the highest chance of price drops were hot spots during the pandemic buying frenzy and saw prices skyrocket because of high demand.
- Home prices in Phoenix are forecast to drop by as much as 18% this year.
5 cities where home prices are likely to fall most
It's worth emphasizing that the price changes below are just predictions, and there's no telling how things will actually pan out.
The cities with the largest projected price drop are all located in the West, where there was a lot of buyer interest during the pandemic:
- Phoenix, Arizona - down 18%
- Stockton, California - down 13%
- Las Vegas, Nevada - down 13%
- San Diego, California - down 12%
- Tucson, Arizona - down 11%
5 cities where home prices are likely to rise most
Here are the five cities where home prices are forecast to increase by the most:
- Scranton, Pennsylvania - up 2%
- Kansas City, Missouri - up 2%
- Hartford, Connecticut - up 2%
- Harrisburg, Pennsylvania - up 1.5%
- Omaha, Nebraska - up 1%
What it means for you
Potential buyers have been hamstrung by fast-rising mortgage rates and high home prices over the past year.
Although mortgage rates are expected to fall sometime later this year, they are not likely to decrease as low as the 3% rates seen in 2021. Housing affordability will still be a major concern, especially for first-time buyers, though lower home prices will certainly help.