Low inventory, high mortgage rates, and steep prices have been bad news for prospective homebuyers in recent months. But in some areas, shockingly high home prices have started to come down, Kiplinger reported.
Here’s a look at which metro areas in the US have seen some of the most notable price drops compared to a year ago, and what the changes mean for the broader housing market.
Where are home prices dropping?
The metro area seeing the highest share of for-sale homes that cost less than they did just one year ago is Austin, Texas, according to a Redfin study released in early May.
Nearly 26 percent of for-sale homes in this Texas city have lower estimated monthly housing payments compared to a year ago. The median sale price in Austin declined 13.6 percent between March 2022 and March 2023, with the current median sale price sitting at $450,000.
The other four metro areas with notable price drops are:
- Seattle, with 23.6 percent of for-sale homes making a lower estimated monthly payment than a year ago and a change in median sale price of -9.5 percent.
- San Francisco, with 18.8 percent of for-sale homes making a lower estimated monthly payment than a year ago and a change in median sale price of -8.9 percent.
- New York, with 18.3 percent of for-sale homes making a lower estimated monthly payment than a year ago and a change in median sale price of -2.2 percent.
- Pittsburgh, with 15.6 percent of for-sale homes making a lower estimated monthly payment than a year ago and a change in median sale price of -5.4 percent.
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What does this say about the housing market?
Amid soaring mortgage rates, falling home prices are likely a welcome sign, but is this a trend isolated to the above metro areas, or a larger indication of where the housing market is headed? March marked the first time in 11 years that home prices fell for two months in a row, according to The Wall StreetJournal. The “national median existing-home price decline of 0.9 percent in March from a year earlier to $375,700 was the biggest year-over-year price drop since January 2012,” the Journals reported based on a statement from the National Association of Realtors (NAR).
However, it’s important to note that declines in home prices are occurring unevenly across the country. Prices are dropping the most in the West, but “in other parts of the country, prices are still rising from a year earlier because the inventory of homes for sale is unusually low for this time of year,” the Journals said. “Home prices continue to rise in regions where jobs are being added and housing is relatively affordable. The more expensive areas of the country are adjusting to lower prices,” Lawrence Yun, NAR’s chief economist, told the newspaper.
Will home prices drop more?
Possibly. “The prospect of an outright price drop is looming on the horizon,” according to a Realtor.com report released at the end of March. At the rate things have begun to slow down this spring, “list prices are likely to decline, relative to the previous year, by summertime,” Danielle Hale, Realtor.com chief economist, predicted.
However, low inventory may complicate matters. “I think we’ve hit kind of the bottom [in terms of pricing],” Lauryn Dempsey, a real-estate agent in the Denver area, suggested to The Wall StreetJournal. “It’s definitely not as competitive as it was at the same time last year, but we definitely still have a really low inventory problem.”
Any future price declines might have patchy effects. Redfin contended in its report that “home prices are falling the fastest in pandemic boomtowns like Austin and expensive coastal markets like Seattle and San Francisco because prices in those places have skyrocketed to unsustainable levels in recent years.” Meanwhile, in locations like Orlando and Des Moines, where just 1 percent of homes for sale cost less than they did a year ago, their relative affordability means that “demand has held up relatively well, which has kept home prices afloat.”
The homes that are most likely to cost less than they would have a year ago are those with an estimated value of $10 million or above, according to Redfin. “Luxury homes are losing value because demand for high-end goods tends to dwindle during times of economic hardship and uncertainty,” the real estate brokerage said.
Other ways to save when buying a home
Shopping while prices are low is one obvious way to save when buying a home, but there are other best practices, too.
- Shop around for the best mortgage rates and compare different lenders.
- Work on improving your credit score prior to applying for a mortgage.
- Take full advantage of any tax breaks for homebuyers.
- Consider foreclosure sales as foreclosure rates rise.
- Negotiate for the seller to pay a portion (or all) of closing costs.
- Avoid paying private mortgage insurance by saving 20 percent for a down payment.
- Be strategic about what time of year you buy (winter may offer more deals than spring and summer).
Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She has previously served as the managing editor for investing and savings content at LendingTree, an editor at SmartAsset and a staff writer for The Week. This article is in part based on information first published on The Week’s sister site, Kiplinger.com.
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