- A handful of cities are the first to show the housing market collapsing amid declining buyer demand.
- The six cities listed here are some of the largest in the US and have been in high demand in recent years.
- Rising mortgage rates and slowing sales suggest more cities will join the fray through 2022.
The red-hot real estate market has fizzled out, and that means home prices are finally cooling off.
In recent years, intense competition from buyers has pushed up home prices in the US, but as affordability declines, demand is fading fast. In fact, higher housing costs have pushed many potential buyers, leading to a slowdown in home buying activity.
In a handful of cities, that recession is already translating into cheaper housing. Data published on Tuesday S&P Dow Jones Indices showed that price growth turned negative in six major metropolitan areas between May and June, reflecting a marked reversal from last year’s buying bonanza.
The table below shows the percentage change in home prices from May to June for 20 US cities, as well as how prices changed from April to May.
California was home to three of the six cities that recorded the lowest home prices in June. Los Angeles, San Francisco and San Diego all saw negative price growth for the month, reversing the course of steady gains during May.
Prices fell the most in Seattle, where the S&P CoreLogic index slid 1.9% through June. Its neighbor to the south, Portland, posted a 0.1% drop, just joining the pack of cities with falling home prices. Denver also saw a 0.1% decrease.
Nationally, the median home price increased 0.6% in June to about $308,000. Although that still points to widespread home inflation, the rebound was slower than the 1.6% rise seen through May. Price growth also slowed in each of the 20 cities tracked by the index.
Median prices remain the highest on the list in San Diego, with a median home selling for $425,000 despite June’s drop. Los Angeles and Seattle are close behind, indicating that the most expensive markets will be the first to feature significant discounts.
In contrast, some of the cities with the lowest average prices had the strongest price growth. Cleveland maintained its place as the cheapest city in the country, with the average home selling for $174,000. However, prices rose 1.2% over the month, declining only slightly from May’s 1.9% increase. Detroit showed a similar performance, with the median sales price rising 0.9% to $175,000 in June.
The Pacific Northwest saw below-trend price growth over the past year as the Sun Belt prospered and economic reopening prompted Americans to return to major hubs like New York City and San Francisco. Relatively weak demand in the region opened the door for price cuts once buyer demand ebbed.
Potential buyers can thank the Federal Reserve for the market slowdown. The central bank has been raising interest rates at the fastest pace in four decades in hopes of cooling demand and countering inflation. Those rate hikes have hit borrowing costs across the economy, but few areas have shown as quick a response as the housing market. The average rate on a 30-year fixed-rate mortgage is now up nearly 2.5 percentage points from levels seen late last year, and Fed officials have repeatedly hinted that more hikes are coming later this year.
That already drove some buyers out of the market. In July, new home sales nationwide fell to slower pace in more than six years, declining to just 511,000 units at the end of the month. During the same period, existing home sales, a measure of the sales volume and prices of existing home inventory, sank for the sixth straight month. hitting a minimum of two years as only 4.81 million units were sold.
As buyer demand fades, sellers are losing your leverage in the housing market. With fewer people vying for homes, the proportion of sellers who slash their asking prices paste an all-time high in July. According to the Redfin real estate database, more than 15% of all home sellers fallen its sale price in all major US housing markets during the month, highlighting a surprising change both in the behavior of the buyer and the seller of the house.
“Sellers are coming to terms with the fact that volatile mortgage rates have curbed demand,” Chen Zhao, head of economic research at Redfin, said in a housing report. “Some sellers are pricing lower and some homeowners are staying because they’re nervous they won’t get a good deal or are hesitant to give up their low mortgage rate.”