Key Details:
- A new Redfin report highlights the first annual drop in home prices since 2012.
- Pandemic boomtowns San Jose and Austin are seeing home prices decline 12 times faster than the national average.
A new Redfin report for February 2023 shows the first annual drop in home prices since 2012. The U.S. median home price fell 1.2% last month. This was due to sellers backing off in response to buyer demand cooling in the wake of a recent spike in mortgage rates.
Pandemic boomtowns saw even steeper declines, with home prices in San Jose and Austin falling at about 12 times the national pace.
Meanwhile, with the decline in buyer demand, home sales and competition stabilized after sliding downward for about a year. Home sales in Miami, for example, fell 44%.
Sellers have had to lower their home price expectations, thanks to the impact of higher mortgage rates on buyer activity. And with sellers holding off, new listings dropped to the lowest recorded level, aside from the early days of the pandemic.
Lower home prices and longer days on market
Interest rates in February rose by almost a full percentage point in February, having a predictable impact on buyer demand as they consider the extra cost of purchasing a home. That, of course, has led to longer days on market for listed homes and sellers resorting to concessions and price cuts to entice cash-strapped buyers.
The sellers struggling the most are those who are still adjusting to the fact that their home’s market value isn’t what it was a year ago. Back then, sellers could count on multiple buyer offers and a final sale for over the asking price. Today’s reality is a bitter pill to swallow.
The recent drop in prices has brought some home shoppers back to the market, but rates are still high, so those who can afford to wait are taking their time and being more selective.
Fewer than half (44.9%) of homes that went under contract last month did so within two weeks, compared to 60.2% a year ago.
It’s also hugely important to note the impact of the Silicon Valley Bank’s recent collapse on the housing market. The resulting (and ongoing) turmoil in the banking sector reduced the likelihood of another interest rate hike by the Federal Reserve, causing mortgage rates to drop from 7% at the end of February to 6.55% as of Friday, March 17, drawing some buyers back to the market.
Home sales & competition stabilize after months of declines
Home sales continued to stabilize in February after a nosedive in the second half of 2022. Pending home sales have been fairly steady since last November, with a seasonally-adjusted monthly increase of 0.3% in February. They’re down 26% year over year, which is an improvement over the 35.5% annual drop last fall.
Closed home sales are also showing modest improvement, with a 1.8% increase from January, marking the largest (seasonally-adjusted) monthly increase in more than a year.
Closed sales have dropped 22.5% compared to a year ago—an improvement from the record annual decline of 35.1% at the beginning of 2023. Considering the majority of the sales that closed in February went under contract in December or January, that improvement is likely due to the drop in mortgage rates during that time, which temporarily stimulated buyer demand.
Buyer competition, i.e., bidding wars, also leveled off in February, taking part in fewer than half (45.2%) of home offers submitted by Redfin agents. The rate of bidding wars has held steady at about the same level for four months after falling for nine straight months. Still, it’s a far cry from what it was in February 2022, when 66.4% of home offers faced bidding wars.
With so many consumers hearing about potential layoffs in their workplaces, reading about bank failures and seeing volatility in the values of their stock portfolios, it’s not surprising many prospective buyers are hesitant to jump into the housing market.
If mortgage rates continue to decline, though, we’ll likely see a surge in buyer activity, especially among those who’ve been waiting for rates to go down at least as far as 6.5%.
Home listings continue to drop as sellers remain hesitant
New listings in February dropped to their lowest level on record (not counting the early days of the pandemic), with a seasonally-adjusted annual drop of 23.3% and a monthly decline of 3.5%.
Homeowners—especially those with substantially lower mortgage rates locked in—have been understandably hesitant to list their properties. It doesn’t help when they see other sellers in their neighborhood dropping their listing price to attract buyers.
Roughly one in seven (14.2%) homes for sale saw a price cut in February, down from a peak of 22% last fall but still more than twice the 5.7% of a year ago.
All the more reason to advise sellers in your market to price their homes appropriately from the get-go. Slashing the price (because sellers overestimated their home’s market value) can scare off buyers and prolong time on the market.
You’ll also want to avoid making impulsive price adjustments based on negative economic or housing news. Keep the bigger picture in mind and encourage your clients to do the same.
Regional highlights for key market indicators
As you’re probably getting tired of hearing, pricey coastal markets and pandemic boomtowns are seeing the steepest drops in both home prices and closed sales, while relatively affordable markets are seeing the best numbers for both.
Home sales that closed in February primarily went under contract in either December or January.
Pending sales in Baton Rouge dropped 6.1% year over year—more than any other metro in Redfin’s analysis. Here are the top five markets with the biggest drops:
- Baton Rouge, LA (-69.1%)
- Allentown, PA (-54.4%)
- Honolulu (-53.8%)
- Greensboro, NC (-49.3%)
- Las Vegas (-47.9%)
Pending sales rose in only four metros:
- Dallas (3%),
- Buffalo, NY (2.9%)
- Indianapolis (2.3%)
- Cincinnati (1.3%)
As for closed sales, here are the top five markets with the biggest drops:
- Miami, FL (-44.2% year over year)
- New York (-39.8%)
- San Jose (-38%)
- Baton Rouge (-37.7%)
- Nassau County-Suffolk County, NY (-37.2%)
The top five metros with the biggest declines in median sale price:
- San Jose (-13.1%)
- Austin (-12.4%)
- Oakland, CA (-11.3%)
- Sacramento, CA (-8.2%)
- Oxnard, CA (-7.3%)
The top five metros with the biggest increases in median sale price:
- Omaha, NE (11.8%)
- Knoxville, TN (11.5%)
- West Palm Beach, FL (11.4%)
- Columbus, OH (10.8%)
- Milwaukee (10.4%)
The top five markets with the biggest annual drops in new listings:
- Allentown (-53.2%)
- Greensboro (-45.8%)
- San Jose (-44.2%)
- Oakland (-43.6%)
- Sacramento (-42.7%)
New listings increased in only two metros—McAllen, TX (10.1%) and North Port, FL (1.6%)—and remained the same in Buffalo, NY.
The smallest drops were in Fort Worth (-2.9%) and Nashville (-3.2%).
The top five metros with the biggest annual increases in active listings:
- North Port (103.1%),
- Austin (78.6%)
- Nashville (71.7%)
- Fort Worth (69%)
- Tampa, FL (62.5%)
The top five metros with the biggest annual increases in active listings:
- North Port (103.1%),
- Austin (78.6%),
- Nashville (71.7%),
- Fort Worth (69%) and
- Tampa, FL (62.5%)
Top five metros with the biggest annual drops in active listings:
- Allentown (-34.4%)
- Cincinnati (-31.8%)
- Greensboro (-28.7%)
- Milwaukee (-26.9%)
- Hartford, CT (-22%)
In the vast majority of U.S. metros, buyer competition is down compared to a year ago. Just over a quarter (26%) of home offers in Colorado Springs (submitted by Redfin Agents) faced competition—down from 79.6% a year ago and marking the biggest annual decline among the metros in Redfin’s analysis.
The top five metros with the biggest annual declines in buyer competition:
- Colorado Springs, CO (-52.6%)
- Las Vegas (-44.6%)
- Charlotte, NC (-42.6%)
- San Antonio (-41.8%)
- Raleigh, NC (37.3%)
Only one metro saw an increase in buyer competition: Providence, RI (+2.8%).
Competition fell the least in these four markets:
- San Jose (-1.4%)
- Baltimore (-1.7%)
- Philadelphia (-7.6%)
- Orlando, FL (-8%)
Top takeaways for real estate agents
If mortgage rates continue to decline, buyer demand will more than likely trend upward. And if we see rates drop to 5%, as Byron Lazine pointed out in this week’s Knowledge Brokers Podcast, “we’d free up inventory,” which would allow home price growth to stabilize, enabling more buyers to purchase affordable housing.
Recent developments in 3D home printing technology could also help with that. Keep yourself informed of these as well as any developments in the housing market that could impact your clients.
The last thing they need right now is more drama, let alone excuses for not coming prepared.
