Even in a heated housing market, some sellers may lower their asking price. A seller may seek to push the market’s boundaries only to discover that they become a little too greedy. It’s even done on purpose: the reduced price tag, of course, gives purchasers the impression that they’re receiving a good bargain.
However, if a regional housing market has a significant increase in price cuts, it typically indicates that things are starting to slow down. That is precisely what we are seeing right now.
Redfin tracked 108 regional property markets, and 102 showed an increase in price decreases in May compared to the same month last year. In May 2021, the average market saw 15.7 percent of its listings have their prices reduced. In the usual market in May 2022, 25.7 percent of the listings had their prices reduced.
This rapid cooling, nicknamed the Great Deceleration by Fortune, is barely even. In May, 29 of the 108 regional property markets studied by Redfin had more than 30 percent of their house listings reduced in price.
The regional housing markets seeing the greatest price reductions are those that had the greatest price increases during the epidemic. Provo, Utah is the place to be. During the epidemic, the market, which is just a short drive from multiple ski slopes, experienced a massive inflow of remote employees. Between May 2020 and May 2022, housing prices in Provo increased by 65.7 percent, much above the 37 percent increase seen nationwide during the first 24 months of the epidemic. But, when the global housing bubble faded last month, things in Provo turned swiftly. In May, 47.8 percent of Provo sellers reduced their asking price. This is an increase from 12.2 percent in May 2021.
Provo was followed by Tacoma, Wash. (where 47.7 percent of listings had their prices reduced); Denver (46.9 percent); Salt Lake City (45.8 percent); Sacramento (44.3 percent); Boise, Idaho (44.2 percent); Ogden, Utah (42.6 percent); Portland, Ore. (42.0 percent); Indianapolis (41.9 percent); and Philadelphia (41.9 percent) (41.2 percent ).
But don’t be misled: these list reductions do not imply that property values are declining nationwide year over year. Not yet, at any rate. As the hot spring market fades and the slower summer months set in, it’s usual for property prices to begin to dip month over month. We’ll have to wait a little longer to see whether a year-over-year price reduction, which has traditionally been unusual, occurs.
This widespread home market slowdown is on purpose.
The Federal Reserve made it apparent earlier this year that it was shifting into inflation-fighting gear. Mortgage rates were immediately priced up as a result of this. Over the last six months, the average 30-year fixed mortgage rate has risen from 3.2 percent to 6.07 percent. That is more significant than it looks. In December, a borrower would pay $2,162 in principle and interest on a $500,000 mortgage at a 3.2 percent fixed rate. Over 30 years, at a 6.07 percent rate, it rises to $3,020 every month.
Mortgage rate increases, along with historic house price rise, have priced out many would-be home buyers. Some borrowers have lost their mortgage eligibility due to stringent debt-to-income ratios. All of this demand destruction has caused the home market in the United States to cool.
Even the source of this information has been targeted. Redfin said last week that it will lay off 8% of its workforce. What’s the reason? “Shortages in Redfin’s income, not in the workers laid off.” We don’t have enough work for our agents and support workers since May demand was 17 percent lower than expected,” the business noted.
Where are we going next? The slowdown in the property market is expected to persist throughout the summer. According to Freddie Mac’s deputy chief economist Len Kiefer, we have entered the “most substantial decline in activity since 2006.” As house sales decline and inventory grows, the likelihood that home prices will decrease year over year rises.
“I’d suggest if you’re a first-time purchaser… or a young person seeking to buy a house, you need a reset.” “We need to go back to a point where supply and demand are balanced, inflation is low, and mortgage rates are low,” Fed Chair Jerome Powell told reporters last week.