After two years in which home prices rose sharply along with home sales, the industry cooled sharply, driven down by high mortgage rates and a lack of the mobility brought on by the COVID-19 pandemic. In some markets, sales are down by double-digit percentages. Sellers are holding inventory off the market to see if higher prices return. (Click here to see where young people want to relocate to the most.)
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One measure of troubled home markets is how much home unit sales are down compared to a year ago. Realtor.com’s “The Great Slowdown: The 10 U.S. Cities Where Home Sales Are Down the Most” indicates that existing home sales dropped 36% year over year in November. In raw numbers, the drop was from 395,000 to 251,000.
High mortgage rates, the primary driver of the decline, caused the monthly mortgage payments to rise by $1,000 or more on an individual home. Selma Hepp, chief economist for CoreLogic stated, “This shows how sensitive buyers are to mortgage rates.”
The city with the worst problem was Tucson, where sales shrank an extraordinary 65% to 789 in November. It was among the inland cities where people went as the pandemic allowed people to move from coastal cities like San Francisco and San Jose.
The city next among those with sales problems was another one in the western United States. Las Vegas sales fell 60% to 1,615. Bryan Kyle, a real estate agent and property manager at First Serve Realty in Las Vegas said, “But in all my years of doing this, I haven’t seen a U-turn quite like this. We’re shaking the trees really hard, to try to find transactions right now.”
Most of the remaining cities with sales trouble were near one coast or another. These include Raleigh, Salt Lake City, Ventura and Charleston.
Will these cities have a turnaround in sales? It is unlikely. The circumstances that helped them last year have disappeared. The relocation of people has been undermined by the end of work-at-home benefits, and high-interest rates will stay high as the Federal Reserve fights inflation.
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