Home prices are finally starting to fall – and they dropped the most in these 3 cities
The housing market may finally be shifting in buyers' favor.
In a good sign for homebuyers, the share of available listings that saw a price cut jumped to 18.9% in July – up 3.4% from the same time last year, and the highest level in two years, according to a new report published by Realtor.com.
Price cuts are atypical in July, which is usually a peak time for home sales. But this year is different, because sellers are trying to lure back lukewarm buyers who are facing both high costs and steep interest rates.
"First, rates remain higher than expected, which means there is less buyer activity," said Ralph McLaughlin, Realtor.com senior economist. "Second, the prospect of lower mortgage rates coming this fall may have induced some buyers to wait. This combo has led sellers to lower their prices in order to attract more buyers."
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The report also showed that median home prices fell last month to $439,950 – down from $445,000 in June.
Among the 50 metro areas tracked by Realtor.com, a whopping 47 saw their share of price reductions increase compared with last year.
Cities that saw the biggest increases in the share of price reductions are Tampa, Florida, at 9.7%; Charlotte, North Carolina, at 9.5% and Phoenix, at 9.4%.
"These are places where sellers have had a good run over the past few years with rising prices, but with the effects of higher rates fully settling in, sellers are having to come back down to earth with their price expectations," McLaughlin said.
There are a number of driving forces behind the affordability crisis.
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Years of underbuilding fueled a shortage of homes in the country, a problem that was later exacerbated by the rapid rise in mortgage rates and expensive construction materials.
Higher mortgage rates over the past three years have also created a "golden handcuff" effect in the housing market. Sellers who locked in a record-low mortgage rate of 3% or less during the pandemic began have been reluctant to sell, limiting supply further and leaving few options for eager would-be buyers.
Economists predict that mortgage rates will remain elevated for most of 2024 and that they will only begin to fall once the Federal Reserve starts cutting rates. Even then, rates are unlikely to return to the lows seen during the pandemic.
Mortgage buyer Freddie Mac said Thursday that the average rate on a 30-year loan tumbled to 6.47%, the lowest level in more than a year. While that is down from a peak of 7.79% in the fall, it remains sharply higher than the pandemic-era lows of just 3%.
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Most homeowners say they are nearly twice as willing to sell their home if their mortgage rate is 5% or higher, according to a Zillow survey. Currently, about 80% of mortgage holders have a rate below 5%.