Real Estate Trends: Where Are Housing Prices Coming Down The Most?

Key takeaways

• On average, housing prices are dropping, nationally.
• Housing markets that are cooling the most are concentrated on the West Coast.
• Rising interest rates and economic uncertainty are among the chief factors pushing home prices down.

The housing market has been cruising up a one way street for some time. Even if you weren’t trying to buy or sell a home, you have unquestionably noticed the skyrocketing prices of real estate.

As the world shifted into the work-from-home paradigm, many buyers sought to change their surroundings while taking advantage of record-low interest rates. This combination of housing market trends led to a perfect storm of marketplace conditions that caused home prices to rise unmercifully month after month.

By the second quarter of 2022, house prices had risen to an average of $525,000. This represents a sharp climb from the average home price of $374,500 in the second quarter of 2020.

If you know anyone who was looking for a home last year, they can regale you with tales of fierce competition and all-cash bidding wars. But in the last couple of months, things have started to take a turn in a new direction.

Where are housing prices coming down the most?

The American Enterprise Institute’s Housing Center reported that average home prices have dropped by 1.6% between July and August of this year. This slight decrease marks the first decline in average home prices since the early days of the pandemic.

Housing prices vary dramatically based on location, so it’s not surprising that housing prices are coming down unevenly.

According to Redfin’s 2022 report, the markets cooling off fastest are the expensive ones. Let’s explore the housing markets experiencing the most precipitous decline.

Seattle, Washington

The median sale price is still $774,950 in Seattle. But according to Redfin’s
RDFN
data, the price per square foot (PPSF) has dropped by 17.7% in the last year. Recently, more sellers have been dropping their prices in hopes of getting an offer.

Las Vegas, Nevada

In fabulous Las Vegas, the PPSF has dropped 14.5% in the last year. Homes aren’t moving as fast as they once did, but the median sale price is still a healthy $416,000.

San Jose, California

The beautiful weather has always drawn homebuyers to San Jose. Although the median sale price is still over $1.3 million, sellers aren’t getting as much for their square footage. Like Seattle, the PPSF has dropped over 17% in the last year.

San Diego, California

Although this coastal city is known to draw a crowd, the median sale price of $800,000 might be putting a damper on homeownership opportunities. In the past year, the PPSF has dropped by 15.8 percent in San Diego. Overall, pending sales are down almost 20% from this time last year.

Sacramento, California

In this capital city, median home prices of $575,000 have buyers pumping the brakes. Pending sales are down by 20.6% from last year, and PPSF has dropped by 17 percent in the last year.

Denver, Colorado

According to Redfin, Denver ties with Sacramento in terms of which market is cooling the fastest. In the Mile-High City, housing prices seem to be coming back down to Earth. The PPSF has dropped by 12.2 percent in the last year.

Phoenix, Arizona

People looking to move to Phoenix can expect a slower market. The median sale price has dropped to $455,900, and the PPSF has dropped by 14.5%. Pending sales are down 19.4% from last year.

Oakland, California

Back in the Golden State, Oakland is another previously hot housing market that’s slowing down dramatically. The PPSF has dropped by over 20% in the last year. Plus, pending sales are down 12.1 percent.

North Port, Florida

North Port is located just north of Port Charlotte. The average PPSF fell 11.1 percent in this area last year. It’s worth noting, however, that Redfin’s data doesn’t take the recent impact of Hurricane Ian into account. This major disaster wreaked havoc on the area, leading to extensive property damage. It remains to be seen how this will effect real estate values.

Tacoma, Washington

Another West Coast city is finding itself in a slow housing market. The PPSF has dropped by 12.8% in the last year.

Other cities that Redfin counts in the top 20 cooling markets include Austin, Raleigh and Dallas. Four more cooling housing markets in Florida include Cape Coral, Jacksonville, Tampa and Orlando. A few additional West Coast cities, like Stockton, Bakersfield and Portland, Oregon, also make the list.

What’s bringing housing prices down?

After witnessing an intensely competitive housing market for so long, it might be surprising that things are cooling off. Here are the driving factors behind these retreating house prices.

Higher interest rates

Trying to buy a home in late 2020 and 2021 was like entering a downright feeding frenzy.

As buyers braved the market, they found steep competition. Of course, demand for housing played a huge role in that competition. But the historically low interest rates drew in many buyers looking to lock in an affordable mortgage.

Today, mortgage rates are no longer historically low. In fact, as of October 2022, mortgage interest rates have shot past 6%, and many are expecting interest rates to head well past the 7% mark.

As interest rates rise, more home buyers are priced out of the market. After all, a lower interest rate can help home buyers lock in a lower monthly payment that works for their budget. But even a seemingly small rise in interest rates can lead to buyers paying hundreds of dollars more per month.

Ultimately, rising interest rates put a damper on demand because people simply cannot afford a home with that kind of an interest rate attached.

Uncertainty

A home is a major financial purchase. It’s one of the biggest purchases that many Americans make in their life. Understandably, it’s difficult to move forward with such a big ticket when there is so much uncertainty skulking around the economy.

Some buyers are hitting pause on their home search while they wait and see what happens to the economy. As buyers leave the market, that dropping demand can push home prices lower.

The bottom line

The housing market is slowing down across the country. But as an investor, this might be the perfect time to get your foot in the door. If you are looking for ways to invest in real estate, consider the modern real estate investment opportunities. A few include REITs, real estate mutual funds, ETFs, RELPs and REIGs.

Until the housing market cools off near you, most of us will look to the financial markets to invest and continue saving for the dreaded down payment. Q.ai takes the guesswork out of investing.

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