Will Home Prices Drop? Not Without These Three Key Shifts

Every few months, someone asks, “Are home prices finally going to drop?” It’s a valid question in today’s market—especially with rising interest rates, economic uncertainty, and mixed signals from different regions across the country. But the truth is: For a significant price drop to happen, three specific things need to occur. And right now, only one of them is showing up consistently across the U.S. Let’s break it down.

1. A Surge in Home Inventory

The first and most crucial condition for home prices to drop is a flood of inventory. You need more homes on the market than there are buyers—basic supply and demand. In some parts of the country, like Florida, we’re starting to see this shift. Inventory is climbing, and as a result, home prices are softening. But these are still isolated cases.

In many markets—especially here in the DMV and more specifically Frederick, MD—we're still in a severe inventory shortage. As of July, we're sitting on just 2 months of inventory, which is historically low. A balanced market typically has 5 to 6 months of supply. Until we get closer to that number, downward pressure on prices will be limited.

2. An Increase in Distressed Properties

The second factor is a rise in distressed properties—short sales, foreclosures, and other financially stressed sellers who need to offload homes quickly, often below market value. We're not seeing this in significant numbers yet, but it's something to watch.

For now, most homeowners have strong equity and low mortgage rates locked in. Unless the economy takes a sharper downturn or unemployment spikes dramatically, this wave of distressed sales hasn’t hit—and may not.

3. Weak Buyer Demand

This is the only piece that’s happening nationwide: buyer demand is down. High interest rates have priced many would-be buyers out of the market or forced them to the sidelines. Ironically, even with this reduced demand, home prices in many areas are still holding steady or even rising due to limited supply.

Here in Frederick, home values are actually up 2% year-over-year as of July. That’s proof that in undersupplied markets, sellers still have the upper hand—if they price and present their homes correctly.

So Why Are Some Homes Sitting?

We're seeing price corrections—but not because the market is crashing. Many of these are due to sellers (and sometimes agents) who are overpricing homes, trying to chase past peaks.

Some homeowners believe they can beat their neighbor’s sale from 2021 or 2022, but the market has changed. Buyers today are more cautious. They’re not throwing offers at anything with a roof anymore.

Homes that show well and are priced right are still getting strong interest—and even multiple offers. On the other hand, homes that are underprepared or overpriced are chasing the market down with repeated price cuts and longer days on market.

The Bottom Line

Will home prices drop? Not unless we see:

1. A flood of inventory,

2. A wave of distressed sales,

3. And continued weak buyer demand.

Right now, we’ve only got one out of three.

If you’re a seller, the takeaway is simple: prepare your home and price it strategically. This market still rewards quality listings. But if you try to test the market with unrealistic expectations, you could end up sitting and cutting your price later.

As always, local market knowledge matters. Reach out if you have questions about your specific neighborhood or want a pricing strategy that works in today’s conditions.