The average home price in the U.S. is now $369,147, according to Zillow, but in some markets, it’s much higher. However, if you want to live in certain high-demand areas, it could be worth waiting for prices to drop.
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Here are some key signs that a housing market is poised for massive price drops.
Homes Are Staying on the Market for Longer
The average days on the market for a listing can tell a lot about where a housing market is going.
“If over the last three to six months the average days on market has been increasing, it typically means that things are priced too high and a correction will need to help,” said Holden Andrews, founder of Helpful Home Group.
Inventory Is Steadily Increasing
In a balanced market, increasing supply is met with increasing demand. But if inventory continues to increase, this is a sign prices could soon be dropping.
“When days on market rising and increased inventory are combined, the market is prime for a correction because it indicates the supply is higher than demand,” Andrews said. “The market isn’t consuming the increased supply, so until the prices adjust accordingly, the supply will continue to compound the problem.”
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There Is a Gap Between Listing Prices and What Homes Are Selling For
Another metric to look at is the listing price to sold price differential.
“This metric is tied to days on market, because the longer the property is on the market, the more price reductions the property will have,” said Casey TeVault, Realtor and founder of Casey Buys Houses.
Increase in Foreclosures and Short Sales
When home prices drop due to foreclosures or short sales, this can drive down all prices in the area.
“A rise in foreclosure filings and distressed property sales signals financial stress among homeowners,” said Stephen Mendiola, real estate expert and founder of Stephen Buys Houses in Houston. “As banks and distressed sellers list homes at lower prices, it creates downward pressure on overall market values.”
Local Job Losses and Economic Slowdowns
The health of the housing market is closely tied to the local economy, Mendiola explained.
“If a region experiences major layoffs, business closures or economic slowdowns, fewer people can afford to buy homes, causing demand — and prices — to fall,” he said.
Increase in Investor Sell-Offs
Investor sell-offs in a given area can lead to plummeting home prices.
“If institutional investors or large real estate investment firms begin selling off properties in bulk, it’s often a sign that they anticipate declining values,” Mendiola said. “Their large-scale sales can flood the market with inventory, further driving prices down.”
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This article originally appeared on GOBankingRates.com: 6 Key Signs a Housing Market Will Soon Have Massive Price Drops
