Why Slowing Home Price Appreciation Is Good For Buyers And Sellers


Many forecasters are calling for slower home price appreciation (HPA) and that is a very good thing. As Core Logic reported recently, home prices rose 18.1% year over year from August 2020 to August 2021. “Annual home price growth was the most that we have ever seen in the 45-year history of the CoreLogic Home Price Index. This price gain has far exceeded income growth and eroded affordability”, wrote Frank Nothaft, chief economist for CoreLogic, in his latest market outlook report.

This level of HPA is completely unsustainable. When HPA rises at 3 to 4 times wage increases it can destabilize the affordability of homes values and home sales. Housing bubbles might occur and potential buyers might decide to wait until things stabilize. In fact, as more resale listings come to market and homebuilders continue to build more homes; most analysts are looking at the market to stabilize with many saying that this is already happening.

But make no mistake about it. As Lance Lambert, the renowned data wonk for Fortune Magazine reported in October, “don’t mistake this softening for a correction”. In fact, slowing is a good thing and for several reasons we are in for a very good real estate market for many years ahead. Here are a few reasons why:

  1. The number 33 matters. The biggest generation in history, the millennial or gen Y, is just entering their early 30’s with the largest cohorts not yet there. 33 is the peak first time homebuyer year for Americans and as the data shows that the power of the millennials is just at the forefront of their peak home buying spree. In fact, if you look at the ages of all Americans there are ever increasing cohorts of millennials heading into this critical age 33 peak home buying year yet to come for years ahead. As Fortunes Lance Lambert pointed out, “The pandemic has also coincided with the largest tranche of millennials (in particular, those born 1989 through 1993) beginning to hit their 30s—typically the big first-time home-buying years.”. Facts are a funny thing because you can’t argue with them. You can’t stop the wave coming into home ownership, a wave that will be only closely matched to the baby boomers when they started buying homes in the early 1980’s.
  2. Millennials are more prepared to buy. They have higher earnings and higher academic attainment than either the baby boom generation or generation x. This ability to buy factor means that a higher percentage of millennials will be qualified to buy than either of the previous two generations. So, not only is this the biggest generation in history, more of them will be able to afford a mortgage.
  3. Price increases will moderate to a more sustainable low single digits annual rate. This will happen for three reasons. First, the resale market did not take shape in either 2020 or 2021 as it normally would. This is because the key spring markets for both years saw the nation wrapped up in the Covid pandemic keeping many prospective sellers in their homes, preferring not to risk getting sick or exposing their families by either people coming through their homes or going out looking at homes to buy. There is significant pent up desire to sell and with the considerable/historic equity built up there is an expectation for significant increases to resale listing inventory ahead as a result. Second, homebuilders will continue to bring ever-increasing volumes of homes to market over the years ahead as supply chain shortages slowly resolve themselves. The increased inventory will help the supply versus demand variable, helping home prices to moderate.
  4. Finally, for some potential buyers, the skittishness about buying into a bubble will subside. As home prices moderate, many will come back into house hunting. The pent up demand that slowed listing activity remains as well with potential buyers. While we have a high volume of home sales over the last 18 months, it pales in terms of what the volume would have been, given this massive generation of millennials entering their early 30’s and their ability and desire to own a home.

Fannie Mae’s recently released national housing survey shows two things. It shows that this is the best time to sell a home in a decade. It also reflects potential homebuyers wanting to see things stabilize. Both are happening right now, in real time. But with the majority of housing economists forecasting growth in home prices in the low single digits over the next several years, this all means that buying sooner at still near historic lows for interest rates will mean buying that home today at a lower price than it might be a year from now or beyond might be the best decision.

David H Stevens, CMB is the CEO of Mountain Lake Consulting, Inc and an advisor to George Mason Mortgage. David was the CEO of the Mortgage Bankers Association in Washington DC and served as the US Assistant Secretary of Housing and Federal Housing Commissioner for President Obama.

Related Articles

The Building and Financing Process

There are several important steps you should take to ensure a successful building and financing process.

Read More →

One-Time Close Construction Loans

One-Time Close Construction Loan Program   GMM’s One Time Close is available for New  Construction and Renovation projects. This program offers you the benefit of …

Read More →

What Is A Mortgage Recast?

You have probably heard of refinancing your mortgage as a way to potentially lower your monthly mortgage payments. There is also another possible option called …

Read More →

How Do Down Payment & Closing Cost Assistance Programs Work?

Who Can Receive Down Payment Assistance? While many down payment assistance programs are often paired with loan options for first-time homebuyers, this is not always …

Read More →

Supply and Demand – An Important Understanding To What’s Driving 2022

Supply and Demand, a market concept that many of us studied in our first economics classes back in college. But never has this foundational economic …

Read More →
FHFA 2021 Announcement

FHFA Announces Conforming Loan Limits for 2022

Baseline Conforming Limit Will Increase to $647,200 FHFA Announces Conforming Loan Limits for 2022 | Federal Housing Finance Agency Washington, D.C. – The Federal Housing Finance …

Read More →
Scroll to Top