What Actually Happens When Home Prices Drop—And How to Use It to Your Advantage

Real estate prices don’t always go up. Market downturns happen. Understanding how they work and how to respond strategically matters.

Why Prices Fall

Interest Rates Rise: When mortgage rates jump from 3% to 7%, buying power crashes. Buyers can afford less. Prices adjust downward to match reduced buying capacity.

This happened Portland 2022-2023. Rates tripled. Prices fell 7-10%.

Economic Recession:

Job losses reduce buyer demand. Foreclosures increase supply. Prices fall.

Housing Oversupply:

New development adds supply. If demand doesn’t match, prices fall.

Portland has experienced this in outer suburbs.

Demographic Shifts:

If region’s population declines or moves elsewhere, local demand falls. Prices adjust. Portland Downturn Reality. Portland 2022-2024 was correction, not crash: - Peaked ~$520,000 median - Corrected to ~$450,000 median - That’s 7-10% correction

Compare to 2008 crash (50%+ decline). Portland’s 2024 correction was moderate.

Who Suffers in Downturns? Recent Buyers (2022): Bought at peak. Underwater or barely breaking even. Cannot sell without loss. Locked in.

Flippers:

Bought to flip, now prices are lower. Profit margins evaporated.

Over-leveraged Investors: Multiple properties, tight cashflow, downturn creates inability to cover expenses.

Renters:

Downturns sometimes bring foreclosures, creating instability.

Who Benefits?

Buyers with Capital:

Downturns create purchasing opportunity. Lower prices, buyer power, negotiation advantage.

Long-term Holders:

Prices fall temporarily, but wealth-building investors don’t care. They’re holding 20+ years. Downturn is buying opportunity.

Cash Buyers:

Investors with cash can buy at discounts without financing.

Strategic Responses

As Seller During Downturn

Price competitively from day one. Don’t wait hoping market recovers. Price where market is, not where you want it. If selling is essential, expect negotiation. Buyers have power.

As Buyer During Downturn

Recognize opportunity. Prices are lower, contingencies are realistic, negotiating power is yours. Buy properties where cashflow works and you can hold long-term. Don’t time market—focus on fundamentals.

As Owner During Downturn

If owner-occupied: do nothing. Price decline doesn’t matter if you’re not selling. Eventually appreciate again. If rental property: maintain it, keep it rented, collect cashflow. Downturn is noise if your cashflow math works.

As Investor Considering Entry

Downturns are best time to invest. Buy when pessimistic, hold through recovery, sell when optimistic. Current Portland market (2025) is post-downturn recovery. Better entry point than 2022, not as good as 2023 would have been.

Market Cycle Reality

Real estate is cyclical: appreciate, overheated, crash, recover, repeat.

Smart investors buy in crashes, hold through recovery, sell in booms.

Historical Portland Perspective

2008: major crash, 50%+ decline, decade to recover

2012-2019: strong recovery and appreciation

2020-2022: pandemic boom, rapid appreciation

2023-2024: correction

2025+: stabilization and moderate appreciation likely

Each cycle takes 7-10 years.

Bottom Line

Prices fall due to rate increases, recession, oversupply, demographic shifts. Downturns benefit buyers and long-term holders. They hurt recent buyers and overleveraged investors.

Recognize downturns as cyclical, respond strategically (buyers should buy, owners should hold), and maintain long-term perspective.