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You may not like what you see.
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It’s hardly a secret that U.S. home prices were quite elevated in 2022. Between that and higher mortgage rates, many buyers struggled with affordability.
But in recent months, home prices have started to cool. We can actually thank higher mortgage rates for that.
In a recent tweet, financial and real estate expert Graham Stephan said, “The housing market correction has already caused homeowners to lose $2.3 trillion.” He then went on to say, “It’s the first time we are seeing consistent drops in home prices after the 2008 crisis.”
Now at first glance, that message might seem alarming. After all, a $2.3 trillion drop — even across the entire U.S. housing market — is not insignificant. But should you be worried if your home has come down in value? Well, it depends.
It’s a matter of whether you’re looking to sell
Let’s say you bought a home for $500,000 last year that’s now only worth $480,000. Seeing that drop can be a bit disheartening, the same way it never feels great to log into your brokerage account and notice that your portfolio value has taken a hit due to market volatility.
But a decline in home prices doesn’t necessarily have to be a problem. And if you’re not looking to sell your home any time soon, then you really shouldn’t lose sleep over the fact that its market value has dropped.
In this example, let’s say you can afford your mortgage payments just fine and there’s no reason for you to move. If your home is now worth $20,000 less than it may have been worth a year ago, all it means is that you have a bit less equity.
Now if you’re planning to borrow against your home equity, whether via a home equity loan or line of credit, then you may want to apply sooner rather than later, before U.S. housing prices further decline as a whole. But otherwise, you really shouldn’t sweat it if your home isn’t worth quite as much as it was last year.
And also, frankly, you shouldn’t be surprised. Home prices were very clearly elevated in 2022. It would stand to reason that higher prices wouldn’t be sustainable on a long-term basis — especially at a time when mortgage rates are up.
What if you need to sell?
Maybe you bought your home last year with the intention to stay put for years, only you’ve recently received a great job offer that requires you to relocate. In that case, if your home is worth less than it was when you bought it, you might take a bit of a loss on the sale.
But that won’t necessarily be a catastrophic loss you can’t recover from. Home prices may be down, but they haven’t plunged. And as long as you’re not underwater on your mortgage, selling at a lower price than you’d like won’t necessarily propel you into financial crisis mode.
As an example, let’s say you borrowed $400,000 to buy a $500,000 home, and your home is now worth just $480,000. That means you can still satisfy your mortgage obligation by selling your home, so you can walk away free and clear.
Remember, any time you buy an asset whose value has the potential to fluctuate, whether it’s a house, a share of stock, or an index fund, you run the risk of having to sell at a less opportune time. But that doesn’t automatically mean you’re ruined financially. So try not to stress too much over a lower home value — and recognize that it’s one of those things that just plain happens.
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