Deceleration

There is a lot of buzz around the word “deceleration of home prices”.

What exactly is Deceleration?

Experts in the real estate industry use words to define what’s happening in the industry. They might sound similar but there lies a huge difference in their meaning.

While Appreciation means there will be a price increase, Acceleration means a fast price increase, Depreciation means a price decrease, likewise, Deceleration means continued appreciation of home price but at a slower pace.

Deceleration doesn’t mean a stall or a bust. It only means instead of acceleration there will be a slowdown in the appreciation of home prices. Thus, there will be an ongoing appreciation of home prices but not at the pace it had been in the last 10 years.

What contributed to this accelerated growth in home prices?

Home prices have not skyrocketed in a single day or a month, there has been a steady price increase for the last 122 consecutive months. Houses have gained value over the last 10 years consistently. But, in the last 2 years, the housing market has seen a dramatic acceleration of price growth. The imbalance between supply and demand has resulted in this accelerated price growth.

How are Home Buyers affected by this deceleration?

Home shoppers should not mistake this latest slowdown as price relief. Because price growth deceleration doesn’t mean the housing market is weakening. In fact, even at a much lower rate of home price growth, it could still be a buyer’s nightmare. The mismatch between supply, with inventory still floating around a 40-year low, and demand, driven by the influx of first-time millennial homebuyers, is poised to keep this a seller’s market through 2022.

Are you considering selling / Buying?

For Sellers – You may want to take advantage of record home prices now before things shift.

If you are a prospective buyer and it might seem now that you could benefit from waiting for the slow down, however with rising mortgage rates home buyers must estimate the total cost of funds that will be involved in the purchase of their house now and later. Compare the cost of a loan at today’s lower interest rate versus a lower home purchase price a few months from now at a potentially higher interest rate. You would end up finding that a lower interest rate will lead to higher savings than a lower purchase price, especially since the rate of deceleration is so slow right now.

Moreover, there is no chance of seeing a cascading price decline this time since lending standards have been solid and backed by steady demand.

Thus, don’t mistake deceleration for depreciation. Home prices will keep increasing steadily at a slower pace. Don’t wait for a surprise to turn into a nightmare. Take action now.