Home Prices Could Take a Huge Dive. Here’s What You Need to Know

For months on end, prospective home buyers have been struggling due to a combination of factors, including elevated home prices and higher mortgage rates. The latter might, unfortunately, be here to stay for a while. But home prices could drop during the second half of 2023, and that's something buyers may want to gear up for.

Could home prices take a fall?

Vanguard expects U.S. home prices to decline 5% during the second half of the year. And that's not a small drop.

We don't know how expensive it will be to take out a mortgage loan during the second half of 2023. But if borrowing rates dip a small amount at the same time home prices decline, buyers might find themselves in a stronger position to make an offer than they've been in for a while. And that's something worth taking advantage of.

Of course, a big wild card factor for home prices will be inventory. The housing market has sorely lacked supply for several years on a national scale, and there's really no reason to assume that inventory will pick up tremendously during the second half of the year.

In spite of this, Vanguard seems pretty convinced that home prices are poised to dip. And while that's not ideal for sellers, it's great news for anyone looking to buy.

How to get ready to buy a home

While home prices might fall during the latter part of 2023, that doesn't mean they're going to plunge. So you'll still most likely need a sizable down payment to pull off a home purchase. Try boosting your savings account balance now so you have the funds available to put down should a buying opportunity present itself. And if you're getting a tax refund, it could pay to allocate that money for home-buying purposes.

At the same time, take a look at your credit score. If it's not in the upper 700s or higher, try your best to give it a boost. The higher your score is, the more competitive an interest rate you're likely to snag on a mortgage once you apply.

You can boost your credit score by paying all bills on time and knocking out a chunk of credit card debt. Checking your credit report for errors is a smart move, too. If your credit report contains a mistake, you'll have a chance to get it corrected so it doesn't hurt your chances of locking in a more affordable mortgage later this year.

While we can't say with certainty that home prices are going to fall in a few months' time, it's encouraging to see that one financial company expects that to happen. If you've been waiting for an opportunity to buy, now's the time to grow your savings and raise your credit score to put yourself in the best position to pounce.

Also, make a priority list of the qualities and features you want in a home. Even if home prices fall in the near term, you're likely to have limited options. So it's important to know what home features are and aren't a must have.