Where House Prices Are Dropping in Summer 2023
Where House Prices Are Dropping in Summer 2023
Market experts have been promising home buyers that change is coming. Home prices surged nationwide during the pandemic, but the crisis has largely passed, and conditions have changed. Still, with some markets showing homes with year-over-year increases of $75,000, $100K, and more, potential home buyers still find affordability challenging.
Owners and buyers continue sitting on the bench, hoping for dipping prices and interest rates to make homes more affordable.
Nationwide, median home prices have been hovering between $400,000 and $450,000 for the better part of a year, according to Redfin. But not every housing market is the same. There are early signs of price growth slowing or even backpedaling in some markets.
Where are home prices dropping?
The Federal Housing Finance Agency (FHFA) found that home prices have increased 4.3% since the year began. It’s now putting the House Price Index (HPI) just under 400, an all-time high in FHFA figures since they started tracking back in 1991. This index measures single-family home prices on mortgages backed by Fannie Mae and Freddie Mac.
If we were to look at those numbers alone, we might assume that no one could find an affordable house right now. But one analysis noted that while home prices ticked upward overall, there are indeed some regions where home price growth is slowing or trending downward.
According to Business Insider, seven states demonstrated declines in the early 2023 numbers. All were located in the western United States. Utah posted the highest price drop, falling by 4.35%. Nevada had a less-substantial but not insignificant drop of 3.6%. Other states where prices fell included California (-2.86%), Washington (-2.62%), and Colorado (-1.07%).
The FHFA numbers showed two regions with annual house price decreases: the Pacific, down 2.4%, and the Mountain, down just 0.1%.
Why are prices dropping in the West? There are at least two contributing factors. States like California, Washington, and Colorado have experienced more people leaving the state, with California notably losing about 0.3% of its population in 2022. The high cost of living is driving people away into states where you don’t need $1 million to buy a decent home. Another factor is how dependent the West is on the tech industry for its economy. As it slowed and pulled back, so did the economies and, conversely, the housing markets of these states.
Why aren’t house prices dropping in more markets
This slowdown in the West may slowly trickle over to other states, but it remains to be seen.
A few different levers will have to pull to help home prices drop in more markets nationwide.
- Interest rates. Interest rates have been higher in 2022-2023 as the Federal Reserve has attempted to curb inflation. And though the inflation numbers have been calming down as we enter summer 2023, the mortgage interest rates have yet to go down. These higher rates incentivize people with 2-3% mortgage rates to stay put.
- Housing inventory. Homeowners are not listing their existing properties unless they have to, further limiting the supply of new houses on the market. But demand hasn’t sunk in key markets, like those in the South, which tends to keep prices high. We will need more homes, whether through new construction or increasing existing home listings, to meet buyer demand.
The East vs. West dynamic
Housing prices out West started high. Take California, where the average home price hit $898,980 in May 2022. Now it’s down to $799,670, which is still well above the national median of $440,300.
Since housing prices out West started high, they have more wiggle room to fall. That may be part of what’s happening, according to CBS News, which sees prime cities in these western states as overpriced.
Home prices in the Eastern US started lower in many states, particularly the South. There are more homes in the east, where most of the population in the US can be found. And many of these eastern states had the most migration in 2022, with Florida, North Carolina, South Carolina, and Tennessee in the top five. The population increase, after years of under-supplied housing markets, would cause prices to rise.
So, on a big-picture level, home prices are staying high overall. It’s a situation that makes it tough for home buyers, waiting for market dynamics to change and become more affordable to purchase their next home.
Where are home prices headed next?
In mid-June 2023, US Federal Reserve chairman Jerome Powell announced that interest rates would remain paused as inflation cooled off. This means that even though inflation is coming down, which investors might feel good about, Powell isn’t ready to say that the economy is stable enough to start dropping its rates.
Interest rates greatly impact the overall economy, from the price of bonds to the cost of a new mortgage. However, any changes take time to have a solid ripple effect. Chances are, conditions in the housing market won’t drastically change over the summer of 2023. Homeowners with mortgages they like, especially if those mortgages were signed in 2020-2021, are more likely to stay put. Financing a new mortgage in current conditions would mean applying for a higher interest rate that adds hundreds a month to their payment.
Whether the falling home prices out West will continue or spread remains to be seen. For now, it’s worth noting that interest rate pressure is keeping home prices high. But doesn’t mean all regions or local markets are affected the same. We’ll be profiling in-demand states where prices may be rising overall but have key markets where home prices are falling, and you can see which markets may have the most change this year.
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Preston Guyton
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