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The red-hot housing market has fizzled out — and that means home prices are finally cooling down.
Over the past few years, intense buyer competition has elevated home prices throughout the US but as affordability wanes, demand is fading fast. Indeed, higher housing costs have pushed out many would-be buyers, leading to a slowdown in home buying activity.
In a handful of cities, that downturn is already translating to cheaper homes. Data published Tuesday from the S&P Dow Jones Indices showed price growth turning negative in six major metropolitan areas from May through June, reflecting a stark shift from last year's buying bonanza.
The following table shows the percent change in home prices from May through June for 20 US cities, as well as how prices changed from April to May.
California played host to three of the six cities that saw lower home prices in June. Los Angeles, San Francisco, and San Diego all experienced negative price growth through the month, reversing course from steady gains during May.
Prices tumbled the most in Seattle, where the S&P CoreLogic Index slid 1.9% through June. Its southern neighbor Portland notched a 0.1% decline, just barely joining the group of cities with tumbling home prices. Denver also saw a 0.1% decline.
At the national level, the average home price rose 0.6% in June to roughly $308,000. Though that still points to widespread home inflation, the uptick was slower than the 1.6% gain seen through May. Price growth also decelerated in every one of the 20 cities tracked by the index.
Median prices remain the highest on the list in San Diego, with the average home selling for $425,000 despite the June decline. Los Angeles and Seattle follow close behind, signaling the priciest markets will be the first to feature significant discounts.
Conversely, some of the cities with the lowest average prices featured the strongest price growth. Cleveland held its spot as the country's cheapest city, with the average home selling for $174,000. Yet prices rose 1.2% through the month, only slightly easing from May's 1.9% gain. Detroit showed similar performance, with its average selling price rising 0.9% to $175,000 in June.
The Pacific Northwest experienced below-trend price growth over the past year as the Sun Belt thrived and the economic reopening pulled Americans back to major hubs like New York City and San Francisco. The relatively weak demand in the region opened the door to price cuts once buyer demand waned.
Prospective buyers can thank the Federal Reserve for the market slowdown. The central bank has been raising interest rates at the fastest pace in four decades in hopes of cooling demand and countering inflation. Those rate hikes have affected borrowing costs throughout the economy, but few areas have shown as fast a response as the housing market. The average rate on a 30-year fixed-rate mortgage is now up nearly 2.5 percentage points from levels seen at the end of last year, and Fed officials have repeatedly hinted that more increases will come later this year.
That's already pulled some buyers out of the market. In July, nationwide new home sales fell to the slowest pace in more than six years, declining to just 511,000 units by month's end. During the same time period, existing home sales — a measure of sales volume and prices of existing housing inventory — took a dive for the sixth consecutive month, hitting a two-year low as only 4.81 million units were sold.
As buyer demand fades, sellers are losing their leverage in the housing market. With fewer people competing for homes, the share of sellers slashing their asking prices hit an all-time high in July. According to real estate database Redfin, more than 15% of all home sellers dropped their asking price in every major US housing market during the month — highlighting a startling shift in both home seller and buyer behavior.
"Sellers are coming to terms with the fact that volatile mortgage rates have dampened demand," Chen Zhao, the economic research lead at Redfin, said in a housing report. "Some sellers are pricing lower, and some homeowners are staying put because they're nervous they won't get a good offer or they're hesitant to give up their low mortgage rate."
