Housing prices being up big from 2020 and down in the past few months aren’t mutually exclusive phenomena. A lot of these price movements can be explained by underlying movements in interest rates.

The housing market exploded in 2020/21 as the Federal Reserve cut interest rates to 0 in order to stimulate the economy during the initial onset of the pandemic. As the pandemic progressed, the Fed kept the Fed Funds rate at zero and began buying large amounts of Treasury, corporate, and mortgage bonds alike as an additional means of keeping rates low. These measures, in conjunction with other programs such as stimulus checks and various stays on payment of things like rent and student loans, created or freed up enormous sums of money which were now spent elsewhere in the economy, causing the rampant inflation we’ve seen throughout 2022.

Slashing rates also caused an explosion in housing prices as borrowing costs fell sharply and people could borrow more money than they may have been able to while rates were at pre-pandemic levels; more access to financing = ability to bid at higher prices. As the Fed has increased rates from 0 to 4.25% this year, borrowing costs have gone back up, meaning it’s gotten harder for people to borrow at the levels we saw through late 2020 and 2021. This tightening in lending has cooled the housing market slightly, but not entirely down to pre-pandemic levels (which I think can also be attributed to the enormous additions to the money supply as part of pandemic-era stimulus programs).