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Only One Major Market is Seeing Housing Prices Decline Right Now


In the four weeks ending April 28, none of the 50 most populous U.S. metro areas experienced a decline in the median home price, according to data from Redfin. That’s the first occurrence of stagnant or rising prices across all metros since July 2022. In a more recent Redfin report covering the four weeks ending May 5, Redfin data showed that the median home price fell in just one metro: San Antonio, Texas. 

Increasing home prices across major cities is just one indicator of housing market health and doesn’t necessarily mean that the residential market is headed for more stable growth. Demand and purchase applications are still down year over year, even though the average 30-year fixed mortgage rate dipped after reaching a five-month peak at the end of April. Nevertheless, a consistently low supply of available inventory is keeping home prices elevated, and both the median asking price and the median sale price are at an all-time high. 

Current Housing Market Indicators

What do these recent trends mean for investors? Here’s a look at what’s going on.

Demand

After a slight decrease at the end of April, mortgage purchase applications are starting to grow with the dip in mortgage rates. For the week ending May 5, both the seasonally adjusted and unadjusted Purchase Index rose 2%, including a 5% increase in FHA loan applications, but were down 17% compared to the year prior, according to the weekly survey from the Mortgage Bankers Association. Loan applications for homes priced at over $1 million increased the most. 

Additionally, the seasonally adjusted Redfin Homebuyer Demand Index, which reflects demand for tours and other services from Redfin real estate agents, was down to its lowest level in two months and down 13% year over year as of the week ended May 12. Google searches for “home for sale” were down 8% month over month and declined 15% when compared to last year. 

In the past few days, touring activity has dropped off, according to ShowingTime, a home tour technology firm. Before May 12, the increase in showings compared to the first week of the year was outpacing the increase for the same period in 2023. 

Average mortgage rates are trending downward, but prospective homebuyers may be waiting for a bigger change before entering the market, especially amid low inventory and an all-time-high average mortgage payment. 

Listing and sales activity

Pending sales dipped in the two most recent Redfin reports, declining 3% or more, year over year, in each four-week period. But new listings were up 10% from May 2023. While any increase in inventory is welcome during the availability crunch, that’s a relatively small year-over-year increase when compared to recent months’ data. Active listings rose 14.2% year over year. 

Competition is still fierce, but there are signs of a shift toward a more balanced market. There are now 3.2 months of supply. That’s a 0.5-point increase from the year prior, but is still indicative of a seller’s market. The percentage of homes that fly off the market within two weeks inched downward from 49% a year ago to 45.2%, and the share of homes sold with a price drop was at 6.3%, the highest percentage Redfin has reported since November 2022. 

Market-level data

Home price increases were most notable in a few expensive, competitive housing markets, like Anaheim and San Jose, California, and West Palm Beach, Florida, but also in a few affordable cities that have seen economic growth and increased housing demand in recent months, like Detroit. The median sale price declined -0.5% in San Antonio, but stayed flat or rose in the other 49 most popular metros. 

Pending sales increased in 12 major metros, but there were notable declines in Phoenix, Atlanta, Houston, West Palm Beach, and Nashville. New listings declined in only six metros, with Chicago listings dropping the most at 8.1%. 

Will Mortgage Rates Come Down?

The average 30-year fixed mortgage rate has fallen steadily in recent weeks and dipped just below 7% on May 16, according to the daily survey from Mortgage News Daily. That’s still high compared to the low rates investors enjoyed in the years leading up to the Federal Reserve’s rate hikes in 2022, and even compared to earlier in the year. 

But it’s unlikely that mortgage rates will decline much more in 2024. Despite cooling inflation, Chair Jerome Powell has indicated that the Fed will need to see three months’ worth of data that shows consistent declines in the inflation rate before cutting interest rates. And most economists expect the federal funds rate to remain above the levels seen in the decade preceding the 2022 rate hikes through at least the end of 2025. 

What the Signs Say for Real Estate Investors

If rates taper off slowly, as most economists expect them to, the decline may not provide much mortgage payment relief due to rising home prices. Meanwhile, demand remains sluggish, and even the slow uptick in available inventory is easing competition. That could make now an opportune time to buy a property and potentially capture the home price appreciation that may continue or even accelerate as demand picks up. 

As always, the best decision will depend on your individual market and the inventory available to you. If you can’t find a property that will generate cash flow, it doesn’t matter whether there are green or red flags in the housing market. And, given that there are few homes on the market to choose from, finding the right property will likely be your biggest challenge.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



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