Housing prices across the U.S. remain higher than ever, but an increasing number of sellers in certain regional markets are “finally feeling forced to slash their prices,” according to a Thursday report from Realtor.com.
Even as 50 of the nation’s largest metropolitan areas saw a big jump in median price listings last month — with asking prices 13% more than last year — some areas saw higher instances of price drops. Nationwide, homes with price reductions jumped to 10.5% in May compared to 6.2% last year.
These cities saw the most price reductions, according to Realtor.com:
- Austin, Texas, was the city with the most price reductions, with instances of price cuts up 14.7%.
- Las Vegas, Nevada, with price cuts up 12.3%.
- Phoenix, Arizona, with price cuts up 11.6%.
“This softening seen in these red-hot markets might mean that sellers’ expectations have not yet caught up with the realities of this rapidly shifting buyer-seller dynamic,” stated Realtor.com’s post.
As high mortgage rates begin to cool the market, inventory is starting to see an uptick. While most housing markets across the U.S. “remain in seller’s market territory,” Danielle Hale, Realtor.com’s chief economist, said “the market is a little more buyer-friendly than we saw last month, and we expect that to continue.”
Why are more sellers dropping prices? All three of those cities in Texas, Nevada and Arizona have ranked in the top 10 areas with the most “overvalued” housing prices, according to research out of Florida Atlantic University and Florida International University.
- Notably, the No. 1 most “overvalued” housing market — Boise, Idaho — didn’t appear in Realtor.com’s report for price drops, along with three Utah cities — Ogden, Provo and Salt Lake City — that have also been ranked among the nation’s top most overpriced cities.
That may be because some regional markets are more at risk for price drops than others, according to a recent analysis from Fortune, which used data from the real estate research firm CoreLogic. All five of Utah’s housing markets included in the Fortune/CoreLogic analysis are classified as “very low” risk of seeing home price drops: Logan, Ogden-Clearfield, Salt Lake City, Provo-Orem and St. George at the south end of the state.
- The analysis aligns with what local experts have been saying about Utah’s housing market, which was grappling with a housing shortage even before the COVID-19 pandemic sent the national housing market into a frenzy.
The big picture: As the Federal Reserve’s high interest rates increasingly pinch would-be homebuyers, housing inventory nationwide is starting to see an uptick. The number of new listings that hit the market in May rose for the first time since June of 2019, according to Realtor.com. That meant home shoppers last month had 8% more active listings to browse compared to last year’s spring market.
This could mean May “might go down as a turning point in the red-hot real estate market that’s been scalding homebuyers for the past few years,” Realtor.com reported.
- “We’re seeing more homeowners decide to sell,” Hale said. “Buyers can expect more inventory going forward, more homes to choose from.”
While good news for homebuyers, that doesn’t mean the market will no longer be competitive. The U.S.’s housing market still has a long way to go from the frenzy set off by the COVID-19 pandemic over the last two years. There are still only half as many homes on the market compared with pre-pandemic levels, reported Realtor.com.
- “Nonetheless, this recent uptick could offer a glimmer of hope for buyers who’ve been scrambling for homes amid bidding wars and way-over-asking offers,” the report said.
More inventory “should eventually translate into a slower pace of sales” and slower price increases, Hale said. “With prices still growing at double digits, we’re a long way from price declines, but price growth is likely to slow.”
How high are prices now: In May, the nation’s median asking price of a home soared to yet another high of $447,000 — a 17.6% increase year over year and up 35% compared with May of 2020, according to Realtor.com.
- Combine those price gains with high mortgage rates, which are now over 5%, and the cost of financing a home is now up 50% over this time last year.