Will Home Prices Drop? Here's What the Experts Are Saying

Buyers are desperate for relief. Will they get it soon?

There's a reason buyers have struggled to purchase a home over the past couple of years. Home prices have been sky-high due to a lack of inventory. And while mortgage rates were at least competitive last year, this year, they've risen sharply, to the point where they're making homes unaffordable to finance.

Now unfortunately, there's a good chance that borrowing rates will remain high for the foreseeable future. But will home prices finally drop to make up for that? There's a good chance that'll happen in the new year, but only to a certain extent.

Buyers could get some relief

Housing market experts seem to agree that home prices peaked already and are in the process of dropping. But will they fall to a low enough level to offer buyers true relief? That's questionable.

Economists from Goldman Sachs expect home prices to decline by about 5% to 10% from their June peak. But that doesn't mean homes will become inexpensive -- rather, prices might drop down enough to the point where they can be categorized as "reasonable."

Wells Fargo has a similar projection. It expects home prices to drop 5.5% by the end of 2023 compared to where they're sitting today. Again, that's some relief, but it's not a ton.

Should you plan to buy a home in 2023?

If you've struggled with the housing market this year, you may be wondering if you'll have better luck in 2023. Based on the aforementioned projections, you might -- especially if housing inventory opens up and the competition lessens.

But do know that even if home prices drop, borrowing rates are apt to be high. So either way, you could be looking at an expensive mortgage.

As such, the decision to buy in 2023 will really need to come down to your personal financial picture. If you have a stable job and a lot of funds set aside for a down payment, and you're confident in your ability to keep up with what could be a hefty mortgage payment, then you may feel comfortable purchasing a home in the new year. If not, you may have to wait for home prices to drop more notably, and also, for mortgage rates to come down.

Now will we be getting back to the days of 3% mortgages any time soon? Probably not. But borrowing rates tend to fluctuate over time, and it's not inconceivable that mortgage rates will ease their way back into the 5% range during the latter part of 2023. That, combined with a decent drop in home prices, could be enough to make property ownership attainable for you.

What about inventory?

A big reason home prices have been so high over the past couple of years is that the housing market has sorely lacked inventory. That's forced buyers to enter bidding wars, which commonly drive housing prices upward.

We don't know whether inventory will pick up nicely in 2023 or remain low. But if the former happens, that could drive prices down to a level that makes buyers happier than they've been in recent years.