Some markets may be more vulnerable than others to falling home prices, experts say.
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Buyers in some markets are already getting, or may soon get, some relief in the form of lower home prices, experts say. Already, over the past 4 to 8 weeks, experts have observed downward price pressure in previously strong high-value markets. (Check here for the lowest mortgage rates you can get now.) “These were markets where the average sales-to-list price ratio did well over 5% of the list price, and examples include San Francisco, San Jose, Austin, Denver and Seattle,” says Chris Stroud. Founder and head of research at HouseCanary, a technology-driven national brokerage providing residential real estate analytics.
All of the cities listed above experienced fairly rapid declines in their respective median closing prices in July and August, as buyers no longer had to enter bidding wars or make offers to be competitive at the top. “Over the past few weeks, median closing prices in these markets have largely stabilized as surpluses have been eliminated,” says Stroud.
In Realtor.com’s July data, the markets with the highest share of price reductions are mostly concentrated in the Sun Belt and include Las Vegas, Phoenix, Austin, Sacramento, Denver, Portland, Dallas-Fort Worth, Nashville, Tampa and San Diego.
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Where will we see house price reductions in the future?
George Ratiu, chief economist at Realtor.com, says those markets could face further declines. “As we look to rebalance over the next few months, we can expect these markets to experience increased pressure on listing prices as seasonal trends become more entrenched and there are waves of buyer traffic from the peak of summer.”
For its part, a group of Goldman Sachs strategists said that western metro areas are more likely to see a price correction, “especially true for markets with low levels of housing affordability, such as Seattle, San Diego and Los Angeles.”
Experts say longer-term price declines will depend in part on where inventories have grown too quickly and too much, along with pent-up demand due to interest rates. “Going into the culture boom, most markets were experiencing record low inventory. This environment has so far prevented large price declines in many parts of the country,” Stroud said, noting that could change.
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NerdWallet’s housing expert Kate Wood says markets that have seen particularly large influxes of out-of-state workers — places like Boise, Denver and Salt Lake City — could be more vulnerable to price drops as the shift to telecommuting ends. “It’s a double whammy for home sellers as the flow of out-of-pocket residents is drying up and many locals are now priced out. With home prices remaining high, these markets are still far from buyer-friendly, but sellers should probably not expect the bidding wars and zero pending offers that have proliferated over the past two years,” Wood said.
Ratiu says that as housing markets retreat amid higher mortgage rates, prices and inflation, some of those markets are finding they have a growing amount of long-term inventory and not enough buyers. “For homeowners eager to sell, the answer is an increasingly outdated one – price cuts. Even as median list prices continue to rise — the result of homeowners pricing their property based on market data from months ago — rising inventory and declining buyer traffic are starting to put downward pressure on prices,” Ratiu said.
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