Home Price Deceleration vs. Home Price Depreciation. How Are They Different?

The value of homes shot up very quickly in 2020 and 2021, but the rate of appreciation has slowed in recent months. This is sometimes called home price deceleration, which might make you feel concerned if you’re a homeowner. And it could be a positive thing if you’re looking to buy your first house soon. But if you’re still a little confused about what this means, you’re not alone. Lots of people are interested in what the housing market is doing and how it will affect them. Understanding the difference between deceleration and depreciation will greatly improve your understanding of how the housing market has been behaving in recent months compared to previous years.

Let’s Define Appreciation, Depreciation, and Deceleration

When something appreciates, it goes up in value, but when something depreciates, it goes down in value. This is probably pretty simple, but a less common word is deceleration. This word means that the value of a property is still going up, but it’s not increasing in value at as quick of a rate as it was previously.

A Look at Recent Home Appreciation

Over the last decade, the price of homes has increased at a fairly steady rate since about 2012 to approximately 2020, at which point the value of homes skyrocketed. The reason for this jump in the value of homes is that more people suddenly wanted to buy homes, in part because of the pandemic. The biggest jump happened in about the fourth quarter of 2020. This trend increased through quarter two of 2021 and stayed at the rate through the first quarter of 2022. Before 2020, the appreciation rate was about six to eight percent. But by the time the third quarter of 2021 hit, appreciation rates were hovering around 18%.

What Experts Are Forecasting

While home prices will likely continue to appreciate, the appreciation will be at a slower pace, which we call deceleration in the housing market. When this happens, you won’t expect to see house prices drop over the coming months. Instead, the prices will continue to rise, but the rate of appreciation might only be at 15% instead of all the way up to 18%. And several months down the road, the rate of appreciation might decelerate even more.

Why Home Prices Won’t Depreciate

Even though house inventory is starting to get larger, it doesn’t mean that there are nearly enough homes available to meet the demand. There are still many more homebuyers than there is inventory, which means that homes are likely to continue to increase in value.

Whether you’re interested in buying a home or selling one soon, getting a good understanding of what the housing market is doing can help you make better plans. When you’re looking for homes for sale in LA, you should talk to a trusted real estate professional to help you with the buying or selling process.