2 Reasons I'm Hopeful Home Prices Will Come Down By the End of the Year

There's reason to think buyers might get some relief.

To call today's homes overpriced would probably be an understatement. For months on end, sellers have gotten away with commanding sky-high prices for their homes. And buyers have been struggling accordingly.

In June, the median price of an existing home sold reached $416,000, according to the National Association of Realtors. That represents a 13.4% jump from the previous June, and also a record high.

But while home prices may be unmanageable for buyers right now, there's reason to be hopeful. Here's why I think there's a good chance we'll be looking at lower sale prices for homes by the end of 2022.

1. Sellers may try to get ahead of a recession

Inflation has been rampant, and for months, it's left consumers no choice but to dip into their savings accounts and rack up credit card debt just to stay afloat. The Federal Reserve is trying to break the cycle of record-breaking inflation by implementing interest rate hikes. The logic is that if borrowing gets more expensive, consumers will start to curb their spending, thereby narrowing the gap between supply and demand that led to soaring inflation in the first place.

The problem, though, is that if the Fed raises borrowing rates too aggressively, it could lead to a major pullback on the spending front. And that could, in turn, fuel a recession -- something many financial experts have been warning of for months.

The idea of a recession can be terrifying because it can lead to widespread job loss. And that's something sellers are apt to be mindful of in the coming months.

If a recession does hit, it will naturally force many would-be home buyers out of the market due to financial concerns or joblessness. That's not a situation sellers want. As such, there's a good chance more property listings will pop up in the coming months as sellers try to get ahead of an economic downturn. And the more inventory we have on the market, the lower home prices are likely to be.

2. Higher mortgage rates should narrow the buyer pool

Mortgage rates have been on the rise since the start of 2022. And while they're definitely not the highest they've ever been, they're notably higher than they were a year ago.

If mortgage rates keep rising, which is likely given the interest rate hikes the Fed is moving forward with, we could see a large number of would-be buyers pull out of the housing market due to affordability concerns. And the less competition there is for homes, the less leeway sellers get to charge the sky-high prices they've been getting away with.

Let's wait and see

Of course, it's impossible to predict exactly where home prices are headed during the latter part of 2022. But there's reason to believe buyers could be in for some relief. Granted, they'll still need to grapple with the higher costs associated with getting a mortgage, but if home prices come down enough, that could be more than enough to make up for higher borrowing rates.