When Will Home Prices Stop Increasing?

Nov 24 2020

When COVID-19 first appeared, people speculated there could be another 2008-like recession that could affect the housing market; after all, much of the country was in lockdown and not out shopping. Not only did a recession not happen then but the United States has been in a seller’s market ever since COVID-19 hit. That’s led many to wonder if we’re in another housing bubble. With nationwide double-digit (nearly 13%) home price appreciation from last year, we might be. And if we are, when will the bubble burst?

Prices not expected to drop soon

The housing market usually corrects itself, finding the right balance between a buyer’s and seller’s market. And it probably will this time as well, but housing prices might not drop anytime soon. Former Fannie Mae chief credit officer Ed Pinto told Fortune magazine in October 2020 that prices will continue to rise for another six months to a year.

Low inventory/high demand

There isn’t a lot of supply in today’s market: a three-month as opposed to a six-month supply. (A month’s supply lets you know how many months it would take to sell all the homes on the market if they were to sell at the current monthly rate for the area.) This is happening at a time when millennials are starting families and interest rates are low, so demand is high. Low supply combined with high demand drives up prices as the homes that are for sale often have multiple offers. The market usually reacts to this in several ways:

New builds

New builds alleviate the problem, but they can’t happen overnight. One reason is onerous zoning laws, common in much of Northeast and Pacific Coast metros, which can add years to the building process. Even in areas without tough zoning regulations, it can take a year to build.


The CARES Act Mortgage Forbearance that banks have been giving to financially stressed homeowners means less inventory is available: Homeowners who might have lost their jobs because of coronavirus lockdowns and are facing foreclosure are getting extra time to put their finances in order. This extra time means houses that would normally be on the market due to foreclosure are not, at least for the time being.

Homeowners not selling

Empty nesters who might have downsized to a condo or apartment are holding onto their homes. One reason is to socially distance. People don’t want to give up their land or live too close to their neighbors right now. Plus, some empty nesters might have adult children who need to move back home due to coronavirus-related unemployment.

Low interest rates

With mortgage loan interest rates under 3% (an all-time low), people who might not have been in the market to buy now are — another factor causing high home prices. About 60% of lenders, however, have tightened their lending standards since the pandemic began. That should lead to fewer qualified borrowers, so interest rates might not be a huge factor regarding increased buyer demand.

Future foreclosures could cause a price decrease

The CARES Act Mortgage Forbearance might be staving off potential foreclosures for the time being, but at some point, there will likely be increased foreclosures, as not everyone will be able to make their mortgage payments when the forbearance period is up. And if that happens, probably around April to October 2021 (the six- to 12-month prediction from Pinto), prices should drop due to an increase of homes hitting the market.

Investors take note: Pinto predicts the areas most likely to have the most foreclosures are Atlanta, Houston, Chicago, D.C., and Riverside-San Bernardino, California.

The Millionacres bottom line

It might take awhile for home prices to stop increasing. But if more inventory comes on the market, investors should be ready. Start putting your feelers out and be prepared to buy during the spring of 2021. It might take longer than that for home prices to stop increasing, but when they do, you’ll be ready.

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