A number of major metro areas saw dramatic list price declines in home prices last month as the U.S. housing market continues to deal with a cooling-off period after overheating that took place during a COVID-19 pandemic homebuying frenzy.
The former pandemic boomtown of Austin, Texas, reported the biggest annual list price decline in the country last month and one of the highest shares of home listings with price cuts, according to data from Realtor.com. Other top markets followed suit in annual declines as markets have become more balanced as inventory grows.
Why It Matters
Price corrections occur due to a number of factors, including fewer people relocating to areas.
Home prices can be influenced by a variety of factors and can have a significant impact on the larger economy as they can affect consumer spending habits and be an indicator of economic growth.
Where Prices Are Falling
While home prices are still rising at the national level, the pace of this growth has slowed down significantly in recent months as sales have fallen and unsold homes have piled up in the market. In some parts of the country, the slowdown has been more significant.
Recent data shows that the South and the West are shifting “decisively” in favor of buyers, Realtor.com writes, as the supply of for-sale homes in these regions increases and these properties spend more time on the market before going under contract—often with significant price cuts.
By comparison, regions where the supply shortage is still acute—like the Northeast and the Midwest—are seeing less significant price changes.
The metropolitan areas with the biggest year-over-year price decline in July were Austin (-4.9 percent), Miami (-4.7 percent), Chicago (-4.4 percent), Los Angeles (-4.2 percent), and Denver (-4 percent).
In all of these cities with the exception of Chicago, the median list price was still above the national average of $439,450 last month. A typical home in Austin was listed for $510,950 in July. In Miami, $509,950. In Los Angeles, $1,148,483. And in Denver, $600,000. In Chicago, home costs are below the U.S. median list price, at an estimated $377,000.
These cities also had some of the highest shares of listings with price cuts in the country. In Austin, 31.2 percent of listings had price reductions, and in Denver, 32.9 percent. Nationally, 20.6 percent of listings had price cuts. That means that the share of price cuts in Miami (17.7 percent), Chicago (15.4 percent), and Los Angeles (17.6 percent) was actually below the nationwide average.
Behind These Numbers
Austin saw an explosion in demand during the pandemic, when the rise of remote work allowed many out-of-state movers to relocate to the city. The Texas capital hardly had enough homes for everyone wishing to buy them then, and prices skyrocketed. At the same time, developers launched a construction boom that has since added many new homes to the city’s supply.
But demand has significantly diminished since the height of the pandemic, partially because of return-to-office orders and partially because of rising housing costs and historically elevated mortgage rates discouraging buyers.
Austin found itself with a lot more new homes at a time when fewer people appeared ready to buy them. As a result, the city’s housing market has been cooling down dramatically.
The same is happening in Denver, another pandemic boomtown which is now seeing inventory piling up in its market.
In these two cities, the median list price of a home in July was significantly lower than three years before, when higher mortgage rates put a halt to the pandemic homebuying frenzy. Home prices were 14.8 percent lower last month than in July 2022 in Austin, and 7.7 percent in Denver.
The Miami housing market, though resilient, is also experiencing a correction after a period of rapid growth appreciation and tighter inventory. The median sale price of a home was a staggering 17.8 percent lower than three years earlier.
But the other two cities in the top five lists of those experiencing the biggest annual price declines last month tell a different story. In Chicago, the median list price of a home was 7.7 percent higher than in July 2022; in Los Angeles, it was 18.4 percent higher.
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