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As a homeowner or would-be homeowner, news of housing market conditions can feel stressful – especially when you haven’t endured those conditions in the past.

But not all terms are as complicated as they may seem, or as scary for you as a homeowner. While a housing price correction or housing market correction describes a drop in home prices, it’s not necessarily bad for homeowners – and can even help homebuyers who are struggling to afford a home purchase.

We’re breaking down the basics of what a housing market price correction is, and whether current housing market activity is indicative of a price correction.

 

What Is a Housing Market Correction or Price Correction in Real Estate?

A housing market correction occurs when home prices drop slightly. There is no formal threshold of dropping home prices that determines a correction, but a drop of 10% or less is commonly used.

The use of the term “correction” indicates that prices have in some way become unsustainable, so the market is correcting itself to better fit with affordability, demand and supply.

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“When we talk about a price correction what we’re really looking at is prices that have been appreciating really aggressively and all of a sudden that slows down rapidly,” says Nicole Bachaud, senior economist at Zillow.

How Long Does a Market Correction Last?

Similar to the fact that there’s no specific percentage that home prices will drop in a price correction, there’s also no defined timeline. “A price correction is not a thing that happens and you can expect it to go away after a period of time,” Bachaud says.

In an instance where home prices in a local market decline slightly and never pick back up again, it’s likely an indicator of greater decline in housing demand – people may have stopped moving to the area and the population is declining, for example.

 

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