Pandemic “boomtowns” are again leading the nation with the largest share of sellers slashing their prices as the COVID-19-related housing frenzy hangover sets in.
The West continues to be ground zero for that phenomena.
Nearly 70% of homes for sale in Boise, Idaho, had a price drop in July, according to a new Redfin analysis of 97 metros across the U.S. released Monday.
Next in line came Denver, where 58% of homes for sale saw a price drop.
Salt Lake City ranked No. 3, with 56.4% of homes dropping in price.
Tacoma, Washington, came in fourth, with 54.8%.
In 2020, 2021 and early 2022, the West became an appealing destination for Americans set free by remote work. Demand here, in fast-growing areas that were already booming, skyrocketed even more, translating to yearly double-digit price increases that have compounded to over 50% or even 60% higher in some areas.
Those four cities also topped Redfin’s list in June, and Boise, Salt Lake City and Tacoma were among the 10 metros with the biggest increase in price-drop rates from a year earlier, according to Redfin.
In May, another Utah metro — Provo — saw the nation’s largest share of home asking price cuts.
Nationwide, the share of homes for sale with price drops hit a record high in July, according to Redfin.
What do these record price drops mean?
“Sellers had to cut their prices because they were catching up with buyers, who had come to expect lower prices amid a cooling market,” according to Redfin. “Rising mortgage rates and the prospect of falling home values also made buyers hesitant to pay sky-high prices, and an uptick in supply gave them more to choose from.”
What comes next? Here’s what Redfin predicts: “Price drops are likely to flatten out as sellers come to terms with the shifting market.”
It’s important to note that sellers’ slashing asking prices is a different metric than actual home value declines as it’s not uncommon for sellers to initially list their homes with a higher price, then adjust it if buyers don’t bite. That’s what’s happening in today’s market, as sellers recalibrate to a market with tempered demand due to higher mortgage rates and priced-out buyers.
“Individual home sellers and builders were both quick to drop their prices early this summer, mostly because they had unrealistic expectations of both price and timelines,” said Shauna Pendleton, a Redfin real estate agent in Boise.
“They priced too high because their neighbor’s home sold for an exorbitant price a few months ago, and expected to receive multiple offers the first weekend because they heard stories about that happening.”
Now, sellers aren’t seeing the same level of competition for their listings. Homes are also sitting longer on the market, now taking weeks to sell rather than a matter of days.
As the U.S. market cools and the market’s dynamic balance slightly more in favor of buyers, Boise’s at the forefront of the shift. Pendleton recommended sellers “price their home correctly from the start, accept that the market has slowed and understand that it may take longer than 30 days to sell.”
However, “if someone is selling a nice home in a desirable neighborhood, they shouldn’t need to drop their price,” Pendleton noted.
Is the housing market crashing?
No. While a growing chorus of national voices are saying today’s housing market is in recession, it’s still a far cry from what happened after the 2006 housing bubble popped.
While sales have slowed dramatically and inventory is skyrocketing, prices remain high as a fair amount of buyers continue to pay full price. Plus, the nation is still facing a housing shortage, so Americans still want to buy homes, but as mortgage rates ticked up many have been priced out of the market or have decided to wait.
Experts have said it would likely take an economic sea change — sweeping layoffs, foreclosures and a dismal job market — to drastically disrupt Utah’s housing price trajectory and send statewide prices spiraling downward.
In Utah, however, after two years of runaway home price growth, home prices in June plateaued and even dipped slightly as the market appears to approach a sense of “normalcy,” in the words of Dejan Eskic, a senior research fellow at the University of Utah’s Kem C. Gardner Institute and one of Utah’s leading housing experts.
Utah — one of the fastest growing states in the nation — was already facing a housing shortage before the COVID-19 pandemic hit, so prices were already climbing. The pandemic only accelerated that home price growth. And while higher mortgage rates have dampened Utah’s housing demand, the state’s housing shortage persists, so experts aren’t predicting a dramatic home price crash even as sales slow and for-sale inventory spikes.