Real estate pop quiz: What do Austin, Las Vegas, Phoenix, Portland (Oregon), and Sacramento all have in common?
If you said that they’re all hot housing markets, you’d be right! But they have something else in common as well. In all five of these metro areas, home sellers are starting to reduce their asking prices. It’s the latest sign of a cooling trend within the real estate market.
5 Hot Housing Markets That Are Starting to Cool
On June 30, Realtor.com’s research team published its “June Housing Report” with data for the nation’s 50 largest metropolitan areas. This monthly report offers insight into real estate trends for major cities across the U.S., along with the nation as a whole.
Their latest report showed that more and more sellers are beginning to reduce their asking prices. Nationally, price reductions rose by nearly 8% in June, when compared to a year earlier.
According to the June 2022 report:
“The share of total homes with a price reduction grew year-over-year nationwide (+7.6 percentage points) in June, as well as in all 50 but one of the largest metros, most significantly in: Austin (+24.7), Phoenix (+22.2) and Las Vegas(+20.1).”
The percentages mentioned above indicate how price reductions have grown over the past year. The percentages below show the overall share of listings with a price reduction during the month of June:
- Austin-Round Rock, Texas: 32.4%
- Las Vegas-Henderson-Paradise, Nev.: 30.6%
- Phoenix-Mesa-Scottsdale, Ariz.: 29.5%
- Sacramento-Roseville-Arden Arcade, Calif.: 25.2%
- Portland-Vancouver-Hillsboro, Ore.-Wash.: 21.4%
This time last year, there were almost no price reductions in competitive housing markets like Austin and Phoenix. Clearly, much has changed since then.
This report brings more evidence that the U.S. real estate market is cooling down, after two years over overheated activity. While this trend is happening nationwide, it’s most noticeable in cities that have had the hottest housing scenes over the past 24 months or so.
More Homes Coming Onto the Market
Hot real estate markets like Austin, Phoenix, Las Vegas and Sacramento have something else in common as well. Inventory growth. In all five of the metro areas shown above, the total number of active property listings on Realtor.com rose by more than 30% over the past year.
In fact, Austin and Phoenix currently lead the nation when it comes to year-over-year inventory growth (among major metros). In both of those real estate markets, the total number of active listings rose by more than 100% from June 2021 to June 2022.
Going forward, these trends should make it easier for buyers to find a home.
You don’t have to be an economist or housing analyst to see the connection here. Hot real estate markets like Austin, Phoenix and Sacramento have experienced significant inventory growth over the past year or so. This means homeowners have more competition when it comes to listing and marketing their homes.
The price-reduction percentages from earlier show that sellers are getting the message. They seem to realize (perhaps through their real estate agents) that the market is cooling. Bidding wars have become a rarity. Demand has softened. And sellers today have to work harder — and be more flexible — in order to attract offers from buyers.
Buyer Challenges: Higher Prices and Mortgage Rates
Nationwide, we’ve also seen a reduction in demand among home buyers. And rising costs have a lot to do with it.
Take mortgage rates, for example. At the start of 2022, the average rate for the popular 30-year fixed mortgage loan was around 3.22%. That’s based on the long-running survey conducted by Freddie Mac. Earlier today, the company reported that 30-year mortgage loans had an average rate of 5.3%.
The takeaway: Mortgage rates have increased by more than 2% since the start of this year, and that has made some buyers shy away from the real estate market.
Low housing affordability also plays a role in all of this — and a big one. Home prices rose substantially over the past couple of years, shutting many buyers out of the housing market altogether.
In hot real estate markets like Austin, Las Vegas, Phoenix and Sacramento, median home prices have risen by 20% or more in past year alone. Higher costs equal fewer buyers.
Reduced demand and rising supply levels have motivated many sellers to slash their asking prices.
Given all of these trends, we could see a new kind of real estate market in 2023. We might have a situation where inventory remains very low by historical standards, but the housing market continues to cool down in spite of that.
And that seems fitting. The past two years have brought housing trends unlike anything we’ve ever seen before. So why should 2023 be any different?