One-time white-hot Sacramento has cooled the most
Higher mortgage rates, a hard-hit stock market and worries of recession are causing many consumers to hold off buying a home – and forcing many home-sellers to drop their listing price in recent weeks.
Nationwide, one of every four (25%) homes on the market had a price decline – also known as a “price improvement” by real estate agents – in June, according to Redfin.
California cities, from Sacramento to San Diego, had some of the largest percentages of homes with price drops in the nation (see chart below). Almost two of every five homes (37%) for sale in the 11 largest metros in California had a price decline in June.
Sacramento, a one-time white-hot housing market during the first two years of the pandemic, has cooled off the most in the state. Almost half (49%) of the capital city’s homes on the market had price drops in June, the sixth-highest rate in the nation.
San Diego and Stockton were also among the price-discount leaders at 43%, while Anaheim, Oakland and San Jose were in the 38% range, according to Redfin.
GOODBYE BIDDING WARS, HELLO DISCOUNTS
Just three months ago, homeowners looking to sell were wading through bidding wars and multiple offers – and netting huge profits. Today, they are cutting prices at a near-record pace, according to housing experts.
“Home sellers are contending with a rapidly changing market, especially in places where they’re used to their neighbors’ homes getting multiple offers and selling for more than the asking price,” says Redfin senior economist Sheharyar Bokhari.
Reality is returning to real estate. And affordability is the primary reason.
It’s one thing when consumers have to deal with record-high home prices when mortgage rates are near a record-low – almost free money at 2.5%. But the Federal Reserve’s recent interest rate hikes, another is likely in late July, have made affordability a real-life worry.
California’s median home price reached a record $898,980 in May, a 53% increase in two years, according to the California Association of Realtors. With mortgage rates at the highest level since fall 2008, the cost of the average monthly mortgage payment has jumped more than 40%.
“Higher mortgage rates and a potential recession are causing prospective buyers in popular migration destinations to press the pause button, and they’re also having a big impact on workers in big job centers who rely on their stock portfolio for down payments,” Bokhari says.
Percentage of homes on the market in California with price drops in June
- Sacramento: 48%
- San Diego: 43%
- Stockton: 43%
- Anaheim: 39%
- Oakland: 39%
- San Jose: 38%
- Fresno: 36%
- Riverside: 36%
- Bakersfield: 35%
- Los Angeles: 30%
- San Francisco: 25%
‘IF DEMAND FALLS FURTHER, SELLERS WILL … CUT PRICES TO ATTRACT BUYERS’
Indeed, the S&P 500, arguably the best way to judge the stock market, is down more than 20% for the year, has entered what analysts call a “bear market.” And for consumers banking on crypto like Bitcoin, the situation is much worse.
The best advice for home sellers in such a fast-changing and challenging market? Redfin analysts encourage home sellers to compare prices in their neighborhood, and price slightly below the competition.
Those home sellers could be ahead of the curve and lure buyers faster. And time is definitely money in the current market.
“If demand plateaus in the coming months, price cuts are likely to be less common as sellers realize the market has shifted and price realistically from the start,” Bokhari says. “But if demand falls further, sellers will continue to play catch-up and cut prices to attract buyers.”
West pushed to the test
The West has boasted some of the biggest price increases during the past two years, with Boise, Denver and Salt Lake City topping the list.
But seven of the 10 cities with the highest percentage of price declines were in the West in June, according to Redfin. And, guess what? Yep, Boise, Denver and Salt Lake led the way.
Almost 62% of Boise homes listed for sale had price declines in June, with Denver following at 55% and Salt Lake at 52%.
Eleven of the 15 metros with the largest price declines were in the West, including Tacoma, Wash.; Seattle, Portland, Ore.; and Phoenix.