Home prices cooling fastest in pandemic boomtowns
Growth in home prices is slowing fastest in cities to which remote workers fled for lower costs of living during the coronavirus pandemic.
The influx of workers from coastal communities intensified competition and drove up costs by more than 30 percent in some of these towns. But lately high mortgage rates and economic uncertainty are keeping buyers out of these once-hot markets and starting to bring prices there back down to earth.
Prices have slowed nationwide as mortgage rates have risen in response to the Federal Reserve’s aggressive effort to curb inflation by raising interest rates.
A string of jumbo interest rate hikes has pushed mortgage rates from 4.16 percent to nearly 7 percent since the Fed first raised rates in March.
Yet these high mortgage rates are hitting some markets harder than others.
A new report from the real estate company Redfin shows that boomtowns like Austin, Texas; Boise, Idaho; and Phoenix are among the major U.S. metros where home prices are decelerating the fastest.
“The forces slowing the housing market, such as high mortgage rates, are having an outsized impact on places like Austin and Boise that saw home prices skyrocket over the last few years,” Redfin senior economist Sheharyar Bokhari said in a statement.
“Home prices can only rise by double digits for so long before the growth becomes unsustainable. High rates and stumbling tech stocks are making it unsustainable quite quickly, especially in destinations popular with tech workers,” Bokhari added.
The price per square foot in Phoenix and Austin slowed by 23 percent since February, when home buyer demand peaked, while the price per square foot decelerated by 22 percent in San Jose, Calif.
Prices decelerated in Las Vegas by 21 percent over the same period and by 20 percent in Boise, the report shows.
However, home prices in Phoenix, Austin and Boise also rose the most in the past two years, with the typical home now selling for around $500,000 in each of those cities.
The price slowdown has also reached America’s major tech hubs. The popular Silicon Valley city San Jose, where prices fell by 1.6 percent from last year, is joined among the top 10 by Seattle, where prices slowed by 19 percent from February.
And both Seattle and San Jose could be further impacted by a series of layoffs at major technology companies.
Layoffs in these cities could cause forced sales, damage buyer confidence and lead to smaller down payments — even from buyers who kept their jobs.
“The housing market is fueled by confidence, affordability and, most importantly, jobs. Housing demand in tech-heavy metros is expected to be lower in the near-term,” Ali Wolf, chief economist at Zonda, previously told The Hill.
“In some cases, prospective homebuyers will lack both the financial ability to purchase a home and the consumer confidence needed to go through with the purchase,” Wolf added.
The median sale price in October for homes in San Jose fell by nearly 1 percent from a year earlier to around $1.3 million. In Seattle the median home in October sold for $845,000, rising after months of steady decline.
Although home prices are rising more slowly across the country, they remain persistently high. In October, prices dropped by 1.4 percent. But they are still up 4.9 percent from last year, with the median priced home selling for $397,549.
Meanwhile, mortgage rates fell again last week, a week after they experienced their largest weekly drop in nearly four decades. Data released by Freddie Mac showed that the 30-year fixed rate mortgage declined by 0.3 percent to 6.58 percent.
Yet these fluctuating rates could put pressure on buyers who may be unsure when to enter or exit the market.
“In recent weeks, rates have hit above seven percent only to drop by almost half a percentage point, Freddie Mac chief economist Sam Khater said in a statement. “This volatility is making it difficult for potential homebuyers to know when to get into the market, and that is reflected in the latest data which shows existing home sales slowing across all price points.”
But the overall price slowdown could benefit first-time buyers who have seen both their purchase power and share of the market decrease dramatically in recent years. A separate report released recently by the National Association of Realtors showed that first-time buyers made up just 26 percent of the market in 2022.
Austin real estate agent Maggie Ruiz said the recent slowdown in the formerly red-hot market has in “many ways” turned it into a buyers’ market.
“Some first-time buyers finally have an opportunity to purchase a home without competing with out-of-towners and investors,” Ruiz said in a statement.
“Because prices and rates are high, a lot of buyers are offering below asking price, negotiating with sellers on a rate buydown, or considering new construction because many builders are offering significant incentives, including rate buydowns, to offload their inventory,” Ruiz concluded.