House prices are dropping now in the real estate market. These price drops are expected as the real estate market was hot in 2021. We have seen some of the highest property values in years. But what goes up, must come down.
Several sources on the internet have shown data indicating we are seeing a shift in the real estate market. I will cover the details of these sources in this article. The data will help you decide whether it’s a good time to purchase a house or not.
If the data tells you anything, it’s that we are still waiting for housing to shift more to a buyer’s market.
Housing Value Peak
In 2021 we saw house prices reach staggering values, especially in California and New York. There was low housing inventory, massive bidding wars for properties, and new homeowners paying well over the asking price.
One real estate agent in Sacramento, California I know told me he has closed on property listings at an average of $35,000 above the asking price. That indicates buyers in that city are still looking for a house to call home and will pay top dollar to get it.
I briefly covered details about the housing peak, as well as predictions of real estate market collapse, in a previous article a few weeks ago.
However, based on the average interest being 7.14%, the market is turning around.
Dropping House Prices
One area where house prices have shifted is in Southern California. For the first time in 10 years, according to LA Times, house prices are dropping in SoCal.
In that area, house prices are down 6% from their peak back in May of 2022. The median price of homes in SoCal, as of the time of this article, sits at almost $818,000.00.
More data indicates other cities, considered Pandemic Boomtowns, declining as well. The top five housing markets, according to MarketWatch, dropping in price from the top of their peaks. These cities include:
- Los Angeles, declined by 11% from its peak
- San Francisco, declined by 11% from its peak
- San Diego, declined 9% from its peak
- San Jose, declined 8% from its peak
- Orange County, Calif., declined 7% from its peak
On Realtor.com, you’ll find the top cities where house prices are dropping the most. Here’s the data on these cities, which include the price drops in these cities around June 2022:
- Austin, TX – Change since June: -10.3%
- Phoenix, AZ – Change since June: -9.9%
- Palm Bay. FL – Change since June: -8.9%
- Charleston, SC – Change since June: -8.6%
- Ogden, UT – Change since June: -8.6%
- Denver, CO – Change since June: -8.0%
- Las Vegas, NV – Change since June: -7.9%
- Stockton, CA – Change since June: -7.7%
- Durham, NC – Change since June: -7.5%
- Spokane , WA – Change since June: -7.4%
Although house prices have dropped in these cities, they also have seen an increase in house values since September of 2021. However, these are markets where house prices have dropped month over month, leading up to September 2022.
Below are cities, according to MarketWatch, where properties being listed for sale have dropped the most between June and September of 2022:
- Austin, the median home list price fell by 10.3%
- Phoenix, by 9.9%
- Palm Bay, Fla., by 8.9%
- Charleston, S.C., by 8.6%
- Ogden, Utah, by 8.6%
And then below are Zillow’s top five declining house markets overall:
- Phoenix, by 2.3% from August
- Las Vegas, by 1.9%
- New Orleans, by 1%
- Riverside, Calif., by 0.9%
- Austin, by 0.9%
The Deterioration of the U.S. Housing Market
If you have been on top of the housing market, you know the Pandemic Housing Boom was in strong shape when entering 2022. Several job opportunities, the tight barriers to entry with lending, and a strong economy meant distressed selling was null and void.
Not any longer. This graph from Fortune shows the highest spike in mortgage rates since the early 1980s:
Affordability was a challenge for people who didn’t have the down payment to outbid other buyers a year ago. Now that challenge rests on many would-be homeowners who need reasonable monthly mortgage payments.
With affordability evaporating for many looking to live the “American Dream.” This goes back to an area I covered before in a previous video on the interest rate difference. You can get a view of the previous interest rate differences in the video below:
Fortune emphasized how much a homeowner would have to pay for a 30-year fixed loan had they purchased in January of 2022. In that example, if a new homeowner obtained a $500,000 30-year fixed-rate mortgage at a 3.2% interest rate, their monthly payments would have been $2,162.00.
But now it’s too little too late to get that low monthly mortgage payment in January.
As the interest rates have created a higher monthly payment ceiling. Obtaining a $500,000 30-year fixed-rate mortgage loan at 7.14% interest will equal $3,374.00 in monthly mortgage payments.
In fact, this graph from Fortune shows the percentages of mortgage payment increases in certain parts of the U.S.
It’s around the time of a downturn in the real estate market where overvalued properties are at the highest risk of price drops. So if there was a dream house you got outbid for, check back in the coming months to see how much it’ll go for.
House Sales
People who sold their houses last year had the right idea of getting out while the going was good. But now those who waited may decide to wait it out longer.
With many, according to LA Times, not wanting to list their homes for sale because they don’t want to give up their low-fixed mortgage rates.
This is one of the reasons why, according to NAR, house sales have dropped 19.9% from August 2021.
Another reason can be properties that are overvalued. Meaning sellers are asking for more money than the market dictates. This could be the reason for, according to US News, listing price drops.
A house could be sitting on the market and has garnered no interest from potential buyers. In time, based on what the market is telling them, the listing agent and the seller will talk about potentially lowering the price of the house to increase traction.
Then with interest rates at an all-time high, potential buyers have to think about when is the right time to buy. Because mortgage payments can deplete a large portion of a person’s paycheck.
In fact, for example, going back to the median price of houses in Southern California at $818,000.
As shown in the image below, you’ll need to make almost $190,000 yearly before taxes to afford a home there. You need that amount of money to one make the large down payment of $164,000, and to afford the $4,400 in mortgage payments.
What Are We Seeing?
So with the interest rate hikes, and some properties still overvalued, we are seeing house prices drop month over month. Also, we are seeing a decline in home values, especially in key Pandemic Boomtowns.
Professionals in real estate, according to MarketWatch, are saying we are seeing the market normalize. It’s the affordability squeeze that is why we are seeing a housing correction in the first place.
So if homeowners are looking to sell, they can assess a more reasonable amount of offers.
I can’t say the shift in the housing market will lead to another recession. But I can agree with one analyst, explaining in LA Times, who says “We may see the largest decline in house prices in years.”
We’ll have to wait and see.
With the facts and financial stats indicating a drop in house prices, use that to dictate, if you’re a buyer when you want to purchase a house that you can call home.