by Homebuyers are finally gaining traction in the housing market, but where they can get the best discounts on home prices varies from yard to yard.
Some of the most popular pandemic boom cities like Phoenix and Seattle, plus perennially popular West Coast cities like San Jose and San Francisco, have seen home prices fall more than 10% since their 2022 peaks, according to data. mortgage technology and data provider Black Knight Inc. surpassed the national average decline of 5.3 percent from its June 2022 peak.
This is a positive sign for some buyers who are taking advantage of new purchasing power and seller incentives in today’s market. However, affordability remains a significant challenge this year, as still high home prices and mortgage rates continue to hold back demand.
“We are finally seeing real price corrections,” John Downs, senior vice president at Vellum Mortgage, told Yahoo Finance. “Home prices remain high, but are better now and are falling.”
Overvalued markets will see sharper declines
After mortgage rates soared to nearly 7% last year, home price growth has started to slump across the country. As of December 2022, home prices had posted their sixth consecutive monthly decline, and Black Knight expects those declines to likely extend through 2023.
About 14 of the top 50 markets are already showing signs of a sharp cooling, the report found, with home prices falling an average of 6% or more from their 2022 peaks on a seasonally adjusted basis. Among the subways assessed, prices fell at the sharpest rate in the West.
San Francisco took the lead, with home prices down 13% in December 2022 from their peak, Black Knight data showed. Followed by San Jose (-12.7%), Seattle (-11.3%) and Phoenix (-10.5%).
However, home prices remain high for many home buyers. For example, according to Realtor.com, the median listing price of a home in San Francisco was $1.3 million at the end of the year, still up 3.7% year over year. However, the average home sold for $1.25 million, which was 3.8% less than the average list price.
“Buyers, especially on the West Coast, know Seattle has been in a sellers market for a decade, but they may have a short window to buy where they can use incentives to buy and stay ahead of the competition” Jeff Reynolds, broker at Compass and founder of UrbanCondoSpaces.com, told Yahoo Finance. “People would rather buy than wait until there is multi-bid competition again.”
Some markets will have a softer landing
Some markets, however, will see more modest declines in home prices.
According to Black Knight, only four of the top 50 markets experienced no price declines, including Kansas City, Indianapolis, Virginia Beach and Louisville, while 20 markets experienced price declines of up to 2%. Twelve subways experienced 3% and 5% declines from their peaks.
A separate report from Goldman Sachs found that areas that have greater affordability — where the monthly payment of a new mortgage costs about a quarter of your monthly income, such as in Philadelphia or Chicago — are likely to see a softer decline in property prices. houses compared to more expensive markets. By comparison, in the West, mortgage payments require three-quarters of monthly income, Goldman Sachs found.
“If you’re a first-time buyer 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 drop” 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 drop” like the one witnessed during the Great Recession.
The primary concern for many economists and housing experts remains affordability.
The national payments-to-income ratio is at 34.8%, according to Black Knight estimates. Although it is down from 38.4% in October 2022, it remains above the high levels seen in 2006 before the Great Recession.
That means it now takes $600, or 41%, more to make the monthly payment on a 30-year mortgage on the average-priced home — after dropping 20% – than it did a year ago.
“The key question is what happens to household incomes now. If they strengthen and if employment remains reasonable, eventually there will be an adjustment in the relative relationship between incomes, mortgage rates and home prices that will allow consumers to get back in the game,” Duncan told Yahoo Finance. “This is the our theme this year: it’s all about convenience.”
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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