Homebuyers are finally gaining influence in the housing market, but where they can get the best discounted home prices varies from metropolitan area to metropolitan area.
Some of the most popular pandemic boom cities like Phoenix and Seattle, as well as perennially popular West Coast cities like San Jose and San Francisco, saw home price declines of more than 10% from their peaks in 2022, according to December data from mortgage technology and data provider. Black Knight Inc. That beat the average national decline of 5.3%, off its June 2022 peaks.
That’s a welcome sign for some buyers who are taking advantage of the new purchasing power and seller incentives in today’s market. Still, affordability remains a major challenge this year, as still-high home prices and mortgage rates continue to dampen demand.
“We are finally seeing real price corrections,” John Downs, a senior vice president at Vellum Mortgage, told Yahoo Finance. “Housing prices are still high, but now they are better and falling.”
Overvalued markets will see steeper declines
After mortgage rates rose to nearly 7% last year, home price growth began to plummet across the country. As of December 2022, home prices had posted their sixth straight monthly decline, and Black Knight predicts those declines are likely to extend through 2023.
About 14 of the 50 largest markets are already showing signs of a sharp cooling, according to the report, with home prices falling an average of 6% or more from their 2022 peaks on a seasonally adjusted basis. Among the metropolitan areas tested, prices declined at a steeper pace in the West.
San Francisco took the lead, with home prices there down 13% in December 2022 from their peak, Black Knight data showed. It was followed by San Jose (12.7% less), Seattle (11.3% less) and Phoenix (10.5% less).
Still, home prices remain high for many homebuyers. For example, the median listing price for a home in San Francisco was $1.3 million at the end of the year, according to Realtor.com, up 3.7% year-over-year. However, the median home sold for $1.25 million, or 3.8% less than the median listing price.
“Buyers, especially on the West Coast, know that Seattle has been in a seller’s market for a decade, but they may have a short buying window where they can use buying incentives to get ahead of the competition,” Jeff Reynolds, a broker at Compass and founder of UrbanCondoSpaces.com, told Yahoo Finance. “People would rather buy than wait until there is multi-offer competition again.”
Some markets will have a softer landing
However, some markets will see a more modest pullback in home prices.
According to Black Knight, only four of the top 50 markets saw no price drops, including Kansas City, Indianapolis, Virginia Beach, and Louisville, while 20 markets saw price drops of up to 2%. Twelve metro areas experienced declines of 3% and 5% from their peaks.
A separate Goldman Sachs report found that areas with higher affordability, where a monthly payment on a new mortgage costs about a quarter of monthly income, such as Philadelphia or Chicago, are likely to see a softer drop in prices. home prices compared to the most expensive. markets. By comparison, in the West, mortgage payments account for three-quarters of monthly income, Goldman Sachs has found.
“If this is your first time buying in a market like Washington, DC, you know the last three years have been really crazy,” Downs said. “But prices are finally coming down.”
No ‘catastrophic crash’ in house prices
According to Fannie Mae Senior Vice President and Chief Economist Doug Duncan, home prices will fall 6.7% over the next two years, but there won’t be a “catastrophic crash” like the one seen during the Great Recession.
The number one concern for many economists and housing experts remains affordability.
The national pay-to-earnings ratio is 34.8%, according to Black Knight estimates. While that is down from 38.4% in October 2022, it remains above the peak levels seen in 2006 before the Great Recession.
That means it now takes $600, or 41% more, to make a monthly payment on a 30-year mortgage on an average-priced home, after making a 20% down payment, compared to a year ago.
“The key question is what happens now with household income. If they strengthen and if employment remains reasonable, eventually there will be an adjustment in the relative relationship between income, mortgage rates and house prices that will allow consumers to get back in the game,” Duncan told Yahoo Finance. “That’s our theme this year: It’s about affordability.”
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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