The National Association of Realtors (NAR) says the median price of existing single-family homes sold in the third quarter of 2019 was up 5.1% from the third quarter of 2018. The National Association of Home Builders/Wells Fargo Housing Opportunity Index, which looks at new and existing houses and condos, reaches a similar conclusion, saying prices rose 4.5% in the same period.

Median Home Price

Annual Percent Change in Median Home Price

NAR Chief Economist Lawrence Yun forecasts a 3% appreciation for 2020. Zillow economist Jeff Tucker agrees, likewise predicting price increases in the low single-digit range.

“Our baseline forecast is for things to settle into a much more slow and steady pace,” Tucker says. “We had really rapid home-value appreciation for a few years, and we’re definitely seeing it slow down. But we don’t see prices falling at the national level.”

For homeowners shaken by the housing market roller coaster of recent years, that’s a reassuring forecast. However, one noted contrarian says prices could drop.

“I wouldn’t be at all surprised if home prices started falling, and it could be accompanied by a recession,” Yale University economist Robert Shiller told Bloomberg Television in September 2019.

Shiller, a Nobel Prize-winner who co-created the Case-Shiller Index of home prices, warned that prices would fall during the housing bubble.

Where prices are falling

Decreasing housing prices

Indeed, prices are declining in a few pockets of the country. In Silicon Valley, where the price tag on a typical home tops $1.2 million, the median price dropped 4.6% from the third quarter of 2018 to the third quarter of 2019, according to NAR.

That’s not the only costly market where prices are in retreat. In San Francisco, sales prices were down 2.5%. In San Diego, they fell 0.8%. Housing economists say California prices simply rose too far too fast.

“A lot of markets are hitting a bit of an affordability ceiling,” Tucker says. “Prices couldn’t rise much further without getting completely out of the reach of most first-time buyers.”

In a few other instances, weak local economies created a drag on home values. In Peoria, Illinois, the median price fell 5.9%, NAR says. In Elmira, New York, prices were off 5.3%. In Cumberland, Maryland, they dropped 4.5%.

For much of America, however, homeowners can expect a soft landing rather than a crash, says Ken Johnson, a real estate economist at Florida Atlantic University and co-creator of the Beracha, Hardin & Johnson Buy Vs. Rent Index.

“There’s just no reason to expect declines in most markets,” Johnson says. “It’s far more likely that we’re going to see a slowdown in appreciation. We shouldn’t expect to see that 5, 6, 7, 8% appreciation.”

That slowdown is something of a head-scratcher. After all, the housing market has many supply-and-demand tailwinds at its back. The U.S. unemployment rate stood at a rock-bottom 3.6% in October 2019 — and, of course, steady paychecks embolden renters to become first-time owners.

Millennials and the housing market

Young couple purchasing a home

Meanwhile, the stock market hit record highs in November 2019, and mortgage rates remained near historic lows. What’s more, the massive millennial generation is finally in a financial position to buy.

“There is a big surge of population of people right around age 30,” Tucker says. “That’s the age at which there’s the steepest transition to homeownership.”

Millennials, the generation born from 1981 to 1998, carry hefty student debts. And many members of the generation entered their working years amid a difficult job market. Despite those hurdles, millennials made up 37% of homebuyers in 2019, NAR says.

In another shift from the bubble of 15 years ago, builders are constructing comparatively few new homes.

“That’s one of the things that’s radically different this time around,” Tucker says. “We’ve had a deficit of home building for several years.”

In one quirk of today’s housing market, the dearth of new homes is limiting property prices. Amid what Yun calls a shortage of housing, home values have outpaced wage gains.

“We just don’t have enough inventory,” Yun says. “Lack of supply is pushing up prices a little too fast.”

Even as home prices rebounded strongly after the Great Recession, wage gains remained in the 2% to 3% range. Put another way, the National Association of Home Builders/Wells Fargo Index says home prices soared 74% from 2012 to 2019. Yet median household incomes grew by just 16%.

As a result, many Americans who don’t own homes have decided to remain renters. In some markets and situations, mortgage payments are more costly than renting. Strong demand for apartments has led to a building boom for rental units. And national landlords such as Invitation Homes have snapped up tens of thousands of single-family houses that once would have been bought by individual homeowners.

Rising home prices have left many Americans facing the rent-or-buy conundrum. Workers who need to move every few years to maximize their earnings shouldn’t buy, but instead should rent and be sure to save and invest, Johnson says. On the other hand, those who plan to live in the same area for years — and who find it challenging to save and invest — should buy homes.

“Ownership, at its core, is a forced savings,” he says.

While Johnson says homeowners in most of the country are likely to see modest appreciation, he worries about three metro areas where home prices have soared: Dallas, Denver, and Houston.

“All three of those metro areas largely escaped the last housing crash,” he says.

Strong job markets in all three cities have spurred housing demand, and Johnson believes all three are sharply overvalued.

Real estate is highly dependent upon location, so understanding the pricing trends in your market can help you decide whether to buy, sell, rent or move.

Jeff Ostrowski is a writer for MoneyGeek and a veteran journalist who covers the economy, real estate and personal finance.