After a slowdown in buyer activity starting in late spring, home price and value drops are being observed more frequently across the U.S.
Nowhere are home values declining quicker than in the western United States, though. California cities San Francisco, Los Angeles and Sacramento, as well as Salt Lake City in Utah, saw the biggest drops in typical home values between July and August, according to Zillow Group Inc. (NYSE: ZG).
Values fell 3.4% in San Francisco and Los Angeles, 3.2% in Sacramento, and 2.6% in Salt Lake City.
Nationally, typical home value fell 0.3% from July, the largest monthly decrease since 2011, according to Zillow.
Home values did rise between July and August in 12 of the nation’s 50 largest metro areas, including Birmingham, Alabama, which saw a 0.9% increase; Indianapolis and Cincinnati, where values rose 0.4%; and Louisville, Kentucky, with an increase of 0.2%.
It’s not just pricey West Coast markets feeling the brunt of price and value drops, though. High-growth housing markets during the Covid-19 pandemic — think Boise, Idaho, and Phoenix — are cooling rapidly, too.
Nicole Bachaud, senior economist at Zillow, said the company is forecasting slight decreases in home prices over the next couple of months nationally.
“Once we hit the spring, we’ll likely see home-value appreciation picking back up, but very slight compared to where we were in the pandemic,” Bachaud continued. “We’re likely going to see things leveling out longer term, maybe 0% growth, before going back to the 3% to 5% typical long-term growth.”
That more normal growth pace will likely not occur until spring 2024, she said.
Although the housing market is rocky, she said, the drop-off is part of a rebalancing after outsized growth and demand seen throughout the pandemic. And while some markets may be in for double-digit percentage declines in values, those metrics will still be much higher than where they were pre-pandemic, she added.
Median sale price is also declining in several major U.S. markets, according to Re/Max Holdings Inc. (NYSE: RMAX) data.
San Francisco saw the biggest drop in median sale price on a monthly basis, at 6.9%, according to Re/Max. Sale price is also down in San Francisco about 4.2% on an annual basis, from $1.1 million in August 2021 to $1.075 million in August 2022.
Coeur d’Alene, Idaho — a pandemic boom housing market — ranked No. 2 among markets that saw sale prices decline last month, at 6.1%, followed by two markets in the Great Plains: Tulsa, Oklahoma, which saw a 4.4% drop in sale price between July and August, and Wichita, Kansas, which posted a monthly drop of 4.3%. Nashville, Tennessee, and Las Vegas also saw 4.3% drops in monthly median sale price between July and August.
Taking a somewhat longer view, Seattle was found to be cooling the fastest among the 100 most populated metropolitan areas, according to a Redfin Corp. (Nasdaq: RDFN) analysis. In metrics like prices, price drops, supply, pending sales, sale-to-list ratio and speed of home sales, Seattle has overall seen the biggest slowdown between February and August.
Even though more cooling off is expected, especially as mortgage rates recently hit 6%, economists say they’re not expecting a crisis in the national housing market akin to the great financial crisis. The most frequently pointed-to reason: the relative amount of equity homeowners have today compared to previous housing downturns.
“Yes, we’re seeing some recent fluctuations, but overall, housing stability and equity, for the vast majority of homeowners, is still in an advantageous position,” Bachaud said. “These small dips are part of this rebalancing taking place. That’s going to help feed into long-term stability and health for the housing market.”
Lisa Sturtevant, chief economist at Bright MLS Inc., said while the days of double-digit price growth and fierce competition for homes are over, there’s a reversion to normalcy being observed in many markets.
Long-term price gains are typically around 3% to 4%, Sturtevant and Bachaud said, and some housing markets are already rebounding to that pace. The most overheated housing markets of the pandemic are the ones most at risk of — and are already seeing — price and value drops.
Sturtevant said while there’s always fear associated with price corrections, the situation today remains markedly different from the 2008 housing crisis. Even in markets that are seeing the most dramatic declines in home price and value, it’s unlikely to create a wave of distress.
“I don’t see it having a big ripple effect on the market,” she said. That’s because of how much equity people have in their homes, and because many opted to refinance to lower rates during the pandemic, Sturtevant continued.
In August, lenders started the foreclosure process on 23,952 U.S. residential and commercial properties, up 12% from July and 187% higher than a year ago, according to Attom Data Solutions LLC. That’s about where foreclosure starts were in 2019, according to Attom, but those levels were relatively low compared to historical averages.
And those who bought homes at peak prices during the pandemic largely obtained record-low financing and are likely to remain in their homes for a decade or even longer. The average time a household remains in a home is 13 years, according to the National Association of Realtors.
Taylor Marr, deputy chief economist at Redfin, told The Business Journals in a recent interview high inflation — especially after the most recent Bureau of Labor Statistics report — is creat the broader economy, including housing.
BLS’ consumer price index increased 0.1% in August and 8.3% during the past year, reigniting fears that efforts to tamp inflation aren’t happening as quickly as some had hoped after more positive reports earlier this summer.
“There’s so much uncertainty in where inflation could go in one versus five years,” Marr said. “Because of that, I think that just makes it a really difficult environment for the market to be correctly pricing in expectations of the future,” including mortgage rates.
Affordability and ability for first-time buyers to enter the housing market remain the biggest challenges, especially with higher mortgage rates. With inventory likely to remain hamstrung for the foreseeable future, it’s expected the U.S. housing market will be inventory starved for the foreseeable future.