- A handful of cities are the first to see the housing market collapse amid dwindling 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 declining sales suggest more cities will join the fray through 2022.
The red-hot housing market has died down – and that means house prices are finally cooling off.
In recent years, fierce buyer competition has pushed home prices across the US, but as affordability declines, demand is rapidly declining. Indeed, higher housing costs have driven out many potential buyers, leading to a slowdown in home buying activity.
In a handful of cities, that decline is already translating into cheaper housing. Data from the S&P Dow Jones indices released Tuesday showed price growth turned negative in six major metropolitan areas from May through June, reflecting a strong shift from last year’s buying bonanza.
The following table shows the percentage change in home prices from May through June for 20 U.S. cities, as well as how prices have changed from April through May.
California hosted three of the six cities with lower home prices in June. Los Angeles, San Francisco and San Diego all experienced negative price growth throughout the month, reversing the course from steady gains in May.
Prices fell most in Seattle, where the S&P CoreLogic Index fell 1.9% through June. Its southern neighbor Portland recorded a 0.1% drop, just joining the group of cities with declining house prices. Denver also saw a 0.1% drop.
Nationally, the median home price rose 0.6% in June to about $308,000. While that still points to widespread domestic inflation, the increase was slower than the 1.6% increase in 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 an average home selling for $425,000 despite the drop in June. Los Angeles and Seattle are closely following, indicating that the most expensive markets will be the first with significant discounts.
Conversely, some of the cities with the lowest average prices showed the strongest price growth. Cleveland maintained its spot as the cheapest city in the nation, with an average home selling for $174,000. Still, prices rose 1.2% during the month, only slightly less than the 1.9% increase in May. Detroit showed similar performance, with an average 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 boomed and economic reopening pulled Americans back 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 waned.
Potential buyers can thank the Federal Reserve for the slowdown in the market. The central bank has raised interest rates at the fastest rate in four decades in hopes of cooling demand and curbing inflation. Those rate hikes have impacted borrowing costs across the economy, but few areas have responded as quickly as the housing market. The average interest rate on a 30-year mortgage is now nearly 2.5 percentage points higher than at the end of last year, and Fed officials have repeatedly hinted that more hikes will follow later this year.
That has already taken a number of buyers off the market. In July, new home sales nationwide fell to their lowest pace in more than six years, to just 511,000 units at the end of the month. During the same period, existing home sales – a measure of sales volume and existing housing stock prices – plunged for the sixth straight month, reaching a two-year low as only 4.81 million units were sold.
As buyer demand declines, sellers lose their leverage in the housing market. With fewer people competing for homes, the proportion of sellers who lowered their asking prices hit an all-time high in July. More than 15% of all home sellers lowered their asking price in every major US housing market during the month, according to real estate database Redfin, highlighting a dramatic shift in the behavior of both home sellers and buyers.
“Sellers are accepting that volatile mortgage rates have dampened demand,” Chen Zhao, the economic research leader at Redfin, said in a housing report. “Some sellers are pricing lower, and some homeowners are left out because they’re nervous they won’t get a good offer or are hesitant to give up on their low mortgage rates.”
