The housing market is sending clearer signals that the pandemic-driven housing frenzy is coming to an end, according to a new report from Redfin, a technology-powered real estate brokerage.
Price drops are becoming increasingly common, particularly in hot migration destinations. In Boise, Idaho, where home prices are up 62% in the past two years, 41% of home sellers dropped their prices in April, the largest share among the 108 metropolitan areas included in Redfin’s analysis. That’s up from 10% a year ago. Cape Coral, Florida (33%), New Orleans (32%), Baton Rouge, Louisiana (31%) and Sacramento, California (30%) rounded out the five markets that are driving the national rate of price drops to its highest level since October 2019.
“Many places like Boise or Sacramento that saw a surge in migration and a sharp increase in home prices over the past two years have now seen an abrupt drop-off in demand, leading sellers to drop their prices with increasing frequency,” said Redfin chief economist Daryl Fairweather.
She added, “When mortgage rates were at or below 3%, both local and out-of-town home buyers were more willing and able to tolerate high prices, but at 5%, many are now priced out. A home’s price is driven by the balance of supply and demand, and when demand drops off and supply increases like it is now, rapid price increases evaporate quickly.”
More than 20% of home sellers dropped their prices in April in seven of the 10 most popular April migration destinations (Cape Coral, Florida; Sacramento, California; North Port, Florida; Tampa; Atlanta; San Antonio and Phoenix). For sellers in these markets, the sharp increase in mortgage rates has knocked some of the wind out of a housing market that had been super-charged by surging migration.
“Conversations with prospective sellers are longer and more emotional now than they were just a few months ago,” said Shauna Pendleton, a Boise Redfin real estate agent. “If your home has been listed for several days with little or no interest from buyers, it’s time to consider dropping the price. If you do have to drop the price, you are far better off doing one large price drop instead of a series of smaller price drops. A larger number of drops is often interpreted as desperation and encourages buyers to wait even longer or make a lower offer.”
In six metro areas, the share of homes with a price drop decreased significantly (5 percentage points or more) from a year ago. All six had a median sale price in April below the national median of $424,400. The share of homes with price drops fell 18 points in Fresno, California; 12 points in McAllen, Texas; 10 points in Bakersfield, California; and 9 points in Elgin, Illinois, Lake County, Illinois and Chicago.
Leading indicators of home buying activity
- Fewer people searched for “homes for sale” on Google. Searches during the four-week ending May 21 were down 13% from a year earlier.
- The seasonally-adjusted Redfin Homebuyer Demand Index, a measure of requests for home tours and other home-buying services from Redfin agents, was down 12% year over year during the week ending May 22. This was the largest decline since April 2020 when the pandemic paused most home buying activity.
- Touring activity from the first week of January through May 22 was 29 percentage points behind the same period in 2021.
- Mortgage purchase applications were down 16% from a year earlier, while the seasonally-adjusted index was flat week over week during the week ending May 20.
- For the week ending May 26, 30-year mortgage rates decreased slightly to 5.1%.