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While elevated mortgage rates have caused buyers to pull back in markets across the country, the median home price has continued to climb with the median sale price for an existing home hitting $416,000 nationally in June, according to data from the National Association of Realtors.
Despite national growth in sale prices, “overvalued” Western markets that saw spikes in popularity and price over the past two years are starting to see some correction with cities that saw the most unrestrained growth during the pandemic starting to see the most price reductions, data from national listing portals shows.
The price reductions are a normal course of action in overheated markets that have seen a level of growth over the past two years, which has reached a point of unsustainability, especially when paired with the pace of wage growth and rising inflation.
“It’s really a market seeking balance because realistically there is no way the housing market of 2021 was sustainable,” Realtor.com Senior Economist George Ratiu said in a phone interview. “Incomes did not keep pace with prices. So for most Americans, their incomes simply haven’t expanded at the same pace. Furthermore, we’re seeing inflation actually take a much bigger chunk out of those wage gains.”
According to data from Realtor.com, cities like Phoenix, Arizona, Austin, Texas and Las Vegas, Nevada experienced the largest share of listings reducing their prices during June. Austin saw the greatest share of listings decreasing their price at 24.7 percent, while Phoenix saw 22.2 percent of listings reduce their price and Las Vegas saw 20.1 percent.
Other regions have seen price decreases on a smaller scale, with 3.5 percent of listings in the Midwest seeing some price reductions, along with 3.2 percent of listings in the Northeast. Nationally, the share of homes facing price cuts is rising, hitting 14.8 percent in June, the highest level since November 2019, according to data from the online listings portal Zillow.
Considered by some experts to be the most overvalued market in the country, Boise, Idaho also experienced a significant amount of price decreases, with over 60 percent of home sellers in the Western city dropping their prices during June, according to data from the technology-powered brokerage Redfin.
Redfin’s June market report also found a significant number of homebuyers cutting their asking prices in Denver, Colorado, where 55.1 percent of sellers slashed their prices and Salt Lake City, Utah, where 51.6 percent did the same.
“Home sellers are contending with a rapidly changing market, especially in places where they’re used to their neighbor’s homes getting multiple offers and selling for more than asking price,” Redfin senior economist Sheharyar Bokhari said in a statement. “Higher mortgage rates and a potential recession are causing prospective buyers in popular migration destinations to press the pause button, and they’re also having a big impact on workers in big job centers who rely on their stock portfolio for down payments.
“In places like Denver, Seattle and Portland, some buyers feel less confident about their finances in the face of a shaky economy and faltering stock market. Sellers are adjusting their expectations in real time as they realize they may not get the price their neighbor got two months ago.”
Price cuts may become less common moving forward Bokhari said, as the market shift becomes more stable.
“If demand plateaus in the coming months, price cuts are likely to be less common as sellers realize the market has shifted and price realistically from the start,” Bokhari said. “But if demand falls further, sellers will continue to play catch-up and cut prices to attract buyers.”