Here's Why Experts Can't Agree on What's Happening With Home Prices

If you've had your eye on buying a house lately, you've likely felt the sting of opening the Zillow app and finding suboptimal homes for sale at suborbital prices.

You can thank both the pandemic-fueled home-buying frenzy and soaring mortgage interest rates for the sticker shock. The average selling price for a home has jumped 27.7% over the past three years. Meanwhile, current mortgage interest rates have climbed to over 7% thanks to the Federal Reserve's war on inflation.

The result: Housing is the most unaffordable it's been in about four decades.

Some potential buyers are waiting for home prices to fall before jumping into the housing market. The problem is that there's no guarantee home prices will come back down, and experts disagree on whether it's even a possibility.

The case for home prices falling

Some experts predict a potential drop in home prices because housing affordability is so bad. Morgan Stanley analysts have said that home prices could fall by 5% by the end of 2024 if interest rates remain elevated.

The idea here is that even though there's not a lot of housing inventory out there, housing is so expensive because of high interest rates that it could drive home prices lower.

Another group of experts predicting a potential drop in home prices are analysts at Moody's. The analysts told CNBC recently that it was "premature to celebrate the end of the housing correction," and said house prices could fall 3.5% between the end of 2023 and the close of 2024.

The case for home prices rising

Sadly, more experts are predicting housing prices will rise than are saying prices will fall.

Zillow's data predicts home prices will rise 4.9% between mid-2023 and mid-2024. The real estate marketplace company says on its website, "The tight inventory conditions and the persistence of elevated mortgage rates are also expected to continue to limit sales volume in the months to come."

Similarly, the National Association of Realtors forecasts that prices could rise by 2.6% in 2024 thanks to an inventory shortage. The group's chief economist, Lawrence Yun, even boldly claimed over the summer that "the housing recession is over."

Some big banks are anticipating higher prices as well. Goldman Sachs analysts recently said home prices may climb 1.9% in 2024 and 2.8% in 2025.

Why the experts disagree, and what you can do if you're house hunting

In general, some experts disagree on where house prices are going because there isn't a consensus on how low inventory and high interest rates will affect the market.

Most experts think that a low supply of homes will continue to push prices higher, while others believe the unaffordability of housing right now will outweigh the inventory constraints and cause prices to fall slightly.

Unfortunately, there isn't much you can do about high mortgage interest rates or low housing inventory. But that doesn't mean you're helpless. You can be proactive in this housing market by taking a few steps, including:

• Shopping around for a lender: Not all lenders will view your financial situation in the same way. As such, it pays to shop around for a mortgage lender that meets your needs and gives you the best mortgage possible.
• Save, and then save some more: It's generally recommended to put 20% down when you buy a home. That's much harder to do these days, especially for first-time home buyers, but putting as much money into your savings account as you can will put you in the best position to buy a home.
• Pay off debts: Lowering your debt obligations can help you secure better mortgage terms. You may be able to get a better interest rate or receive a larger loan if you have less credit card debt or have your car loan paid off.

There are plenty of unknowns in the housing market right now, and no one knows for sure if prices will drop over the next year. But you can be ready to make a move toward buying a house by getting your personal finances in shape now.