Home prices are beginning to fall in many American cities after nearly two years of increases, according to a report from real estate brokerage Redfin.
Single-family homes have experienced dramatic price hikes since COVID and the lockdown-induced recession. In the first quarter of 2022, the median sale price of a home in the United States was $433,100, according to data from the Department of Housing and Urban Development, marking a 34% rise from $322,600 in the second quarter of 2020.
However, many cities where housing prices boomed in the months after the recession are seeing the steepest price declines. Nearly 70% of home sellers in Boise, Idaho, dropped their asking prices last month, representing the largest slowdown in the Redfin analysis. Cities such as Denver, Colorado; Salt Lake City, Utah; and Tacoma, Washington, respectively saw 58%, 56.4%, and 54.8% of homes decrease in price.
“Individual home sellers and builders were both quick to drop their prices early this summer, mostly because they had unrealistic expectations of both price and timelines,” Boise Redfin agent Shauna Pendleton explained in a press release. “They priced too high because their neighbor’s home sold for an exorbitant price a few months ago, and expected to receive multiple offers the first weekend because they heard stories about that happening.”
Indeed, the National Association of Home Builders’ Housing Market Index indicated that the United States has entered a housing recession, with all three components of the metric — current sales conditions, sales expectations, and traffic of prospective buyers — declining to their lowest levels in the past two years. “Tighter monetary policy from the Federal Reserve and persistently elevated construction costs” led to the phenomenon, NAHB chief economist Robert Dietz remarked.
Buyers are now expecting lower prices amid a cooling real estate market, which has been induced by rising mortgage rates and market expectations for a decline in prices, according to Redfin. Indeed, the 30-year fixed-rate mortgage began climbing at the beginning of 2022, according to data from Freddie Mac, beginning at slightly over 3% in January before nearing 6% in June and moderating to 5.1% as of Monday.
Tampa, Florida; Phoenix, Arizona; and San Diego, California, are also seeing a large number of sellers decrease prices. Among the cities with the lowest share of price drops are McAllen, Texas; Newark, New Jersey; Miami, Florida; and El Paso, Texas.
“My advice to sellers is to price their home correctly from the start, accept that the market has slowed and understand that it may take longer than 30 days to sell,” Pendleton added. “If someone is selling a nice home in a desirable neighborhood, they shouldn’t need to drop their price.”
Government-backed mortgage company Freddie Mac recently forecasted that home prices would grow at 4% in 2023 — a relative slowdown from 17.8% in 2021 and 12.8% in 2022.
“The Federal Reserve’s action to help manage inflation has created significant volatility in mortgage rates and, by extension, the housing market,” Freddie Mac chief economist Sam Khater said in a press release last month. “Although house price appreciation will grow at a more moderate rate, home prices remain high relative to homebuyer incomes. Taken together, these factors are exacerbating affordability challenges and causing a slowdown in the housing market.”