Now that home prices are finally going down, just how far will they go? That's the million-dollar question for frustrated homebuyers, worried sellers and homeowners who want their home values to continue to rise.

On Memorial Day, billionaire Twitter owner Elon Musk tweeted, "Commercial real estate is melting fast. Next up are home values."

However, housing professionals don't expect any sharp decline to bring much comfort to homebuyers. Despite higher mortgage rates, the real estate market is still full of potential buyers competing for an extremely limited number of homes for sale.

Even though mortgage rates hovering around 7 percent have pushed home prices down a bit from last summer's peak, they are expected to remain strong due to the housing shortage.

"Most likely, we'll see a little bit of a decline followed by some months of subpar growth," said Daniel Hale, chief economist at Realtor.com®." I don't expect to see double-digit price declines. I expect prices to mostly move sideways for the next year or so."

Sales prices for existing homes, excluding new construction, began to decline year-over-year in February, according to the National Association of REALTORS®. prices fell 0.2 percent in February, 0.9 percent in March and 1.7 percent in April. Federal data show that prices for new home sales began to decline in April, falling 8.2% year-over-year.

Economists prefer year-over-year comparisons to account for the normal, seasonal fluctuations in the housing market. For example, home prices are typically highest in the spring and summer. Traditionally, they fall as the weather turns cooler.

Listing prices are expected to be negative this month as sellers come to terms with the fact that they are not getting the price they initially wanted. According to the latest data from Realtor.com, they were down 0.9% for the week ending June 10. The lower sales prices indicate that sellers have priced their properties ideally, but have dropped slightly in order to achieve a sale.

"What this really shows," Hale said, "is that sellers are playing catch-up with buyers." Sellers are willing to accept lower prices. In the next few weeks, they will start with lower asking prices."

While prices may be falling nationwide, they are not falling in every market or for every home. In some areas of the country, prices are soaring. And the most desirable homes continue to receive multiple offers.

"Even if someone is in a market where they see local prices dropping, that doesn't mean every house in every neighborhood is dropping in price," says Ari Wolfe, chief economist at Zonda, a housing market consulting firm." If it's in a good school district, has curb appeal and is a turnkey house, even in markets [that] see prices dropping, the prices of those homes will probably continue to rise."

How low will home prices fall?

Housing economists don't expect home prices to fall significantly, and certainly not in the way that happened when the housing bubble burst during the Great Depression. Most expect a single-digit decline.

Realtor.com predicts a small decline, similar to the 2% year-over-year decline expected by the NAR. But while Realtor.com expects prices to be essentially flat next year, NAR expects prices to rise about 3 percent in 2023.

"We don't expect prices to fall for too long," said Nadia Evangelou, NAR senior economist.

Housing consultancy Zonda expects home prices nationwide to be about 3 percent lower this year than in 2022.

"If we're wrong, we may be too aggressive. It could go down more than we're calling for," Zonda's Wolfe said." The key factors that will determine the direction of home prices will be [housing] inventory, unemployment and mortgage rates."

But Mark Zandi, chief economist at Moody's Analytics, expects a larger, longer decline in home prices. He predicts home prices will fall 8.5 percent in three years, from their peak last July to early 2025. Buyers should not expect significant price reductions at the lower end of the market, where competition is fiercest and the number of more affordable homes is very limited.

The drop will not erase years of previously unimaginable price gains during the COVID-19 pandemic.

"Most experts don't expect prices to return to 2019 or early 2020 levels," Wolfe added." It's important to put the home price correction in context. We have experienced a historic price increase. a 3 or 5 percent decline is not catastrophic.

"It doesn't mean there's a housing bust and millions of people will lose their homes," she said.

Lower home prices won't benefit homebuyers much

Homebuyers shouldn't be popping champagne just yet. Lower prices probably won't make much of a dent in their bottom line.

With mortgage rates hovering around 7% on 3-year fixed-rate loans, monthly mortgage payments may still be challenging. Buyers today will pay 21% more per month on their mortgages than they did a year ago. Their payments are more than twice what they were three years ago.

(The analysis uses data from Realtor.com and Freddie Mac's average 30-year fixed mortgage rate for the last week of May to compare national median listing prices for May 2023, May 2022 and May 2020. It also assumes buyers put 20 percent down, excluding property taxes, insurance and other fees).

"In most places, people aren't seeing their mortgage payments go down," Hale said." The cost of buying a home doesn't really go down."

Home prices have fallen in some markets, while they are rising in others

Of course, real estate is all about location. Some areas of the country, such as the more expensive western regions, have experienced steep price declines. These areas may have bottomed out and some have seen prices rebound.

Prices may also be weaker in the southeast. The region has attracted a large number of new residents while increasing the supply of new housing. Builders have more land available in the region and have fewer building restrictions to contend with.

"Only a certain number of people can continue to buy homes at the prices they are now," Zonda's Wolf said." We may see prices fall back to match incomes."

Meanwhile, prices are still rising in some cheaper Midwestern and Northeastern markets. For example, in the Cincinnati metro area, the median listing price rose 19.9 percent year-over-year in May, according to Realtor.com. Rochester, N.Y., and Hartford, Connecticut, rose 19.2 percent and 17.2 percent, respectively.

"It's going to depend on where you live," Wolfe said." Most markets will probably see prices drop a little bit year-over-year."

Should homeowners who bought their homes during the peak period be worried?

Those who buy homes during peak periods shouldn't worry too much, especially if they don't plan to sell soon.

Homeowners lost about 0.7 percent of their equity in the first quarter of the year, according to real estate data firm CoreLogic. That's about $5,400 per homeowner with a mortgage.

The rule of thumb is that people should stay in their properties for at least five years so they don't end up in the red. This takes into account slight market fluctuations and the closing costs that sellers will inevitably pay in a sale. Those who wait in a down market have historically recovered what they lost in home value and then some.

"There can be short-term changes in home values," says Keith Gumbinger, vice president of HSH.com, a mortgage information site. But "home prices usually recover over time."

What will cause home prices to rise

While the smartest people in the industry expect home prices to fall, there's no guarantee it will happen.

If mortgage rates fall below 5%, this is considered a turning point. More sellers will likely put their homes up for sale and there will be more buyers in the market.

This additional demand, and the ensuing bidding wars and offers that exceed asking prices, will likely push prices up again.

"There are a number of factors that could affect changes in home prices," Wolfe said.