The rallying real estate market lasted the better part of three years until rising interest rates wounded it in the second half of last year. In some cities month over the previous year’s month in early 2022, home prices rose almost 20%. According to the S&P Case Shiller price index, the figure was even higher in some Florida cities and some in the southwest. Mortgage rates were 3% then.
Mortgage rates are 6% today. The rise in home prices has slowed considerably, and in several cities, they have begun to fall compared to the same month the year before. Expensive coastal cities like San Francisco and San Diego have been hit particularly hard.
In several cities, sellers have begun to drop prices to spur activity. Sellers are in a race to make as much money as they can. For some, the situation is more critical. They do not want to lose money on homes they overpaid for two years ago.
Realtor.com recently issued its “The 10 U.S. Cities Where Sellers Are Slashing Home Prices the Most—and the Least” study. The primary yardstick is the percentage of sellers in each market who cut asking prices in February. The researchers examined 150 cities.
Commenting on what triggers reductions, Hannah Jones, an economic research analyst at Realtor.com said, “A price reduction means the sellers are coming into the market optimistic, but the buyers aren’t meeting them there. Eventually, they might have to lower the price in order to get the interest that will lead to a sale.” Markets in the South have struggled more than most as the market has softened.
The city where the most sellers surrendered to market pressure is Austin. Prices were cut on 25.4% of listings in February. The median asking price in the city is $532,500, which makes it expensive compared to most markets. Realtor.com’s reaction is, “When demand soared, prices followed, and the bidding wars drove them up even further—beyond the reach of many would-be buyers.” Usually, it takes months, if not years, for prices to reset to the level where it improves demand.
Suppose interest rates remain high or even press higher. In that case, the Austin problem will spread elsewhere, and piece by piece, the national real estate picture becomes more gloomy compared to a year ago.
These are the cities with the most expensive homes.
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