Many Markets Riding Out Falling Home Prices

Home prices are falling, but is the sky falling?

Some real estate agents suggest that sellers dropping their listed prices – Redfin reported that about 70% of homes in Boise have done so – is “normal market cycle activity.”

Scott Harris, at New York-based Brown Harris Stevens, tells GlobeSt.com, “The pendulum swings back and forth. In New York City, we didn’t see the pendulum swing to new market peaks — what we tend to find is that our market is far less volatile than everywhere else.

“The highs in this case didn’t swing quite so high- but the lows won’t either. It makes sense that in most metro markets, rising mortgage rates will dampen enthusiasm.”

Harris said that in New York, for example, nearly 50% of transactions are all cash.

“Therefore, it may be buyers tapping on the brakes slightly, not slamming them as we may see in other markets,” Harris said. “Buyers remain excited and engaged in New York and inventory remains stubbornly low. I can’t help but be optimistic that New York will prove to be more resilient market than everywhere else in the US.”

Steven James, president and CEO, Berkshire Hathaway HomeServices New York Properties, tells GlobeSt.com that the New York City housing market remains a seller’s market even though pending sales are down 14.3% year-over-year.

“The price per square foot is up 3.3% year over year and our monthly supply of properties is down 19.6% year-over-year,” James said. “We feel that this will continue in this direction during the fourth quarter.”

Tampa Median List Prices Steady Six Straight Months

Kurt Carlton, co-founder and president of New Western, “Rising rates have certainly cooled homebuyer demand but we see the housing market slowdown, slowing down. Unit volume in popular Sunbelt markets like Austin and Central Florida is actually up 22 to 30 percent, respectively, for New Western. Florida continues to see a rise in its population with markets from Tampa to Orlando topping the list of cities expected to see continued growth in 2022.

Kurt Carlton, co-founder and president of New Western, tells GlobeSt.com that the percentage of home listings with price reductions has leveled off nationwide as sellers face less competition.

In Tampa, he said his median list prices are actually holding strong at a six-month high.

“As rates have increased, so has noise in the market about sellers dropping prices,” Carlton said. “This dynamic is on the heels of some bad seller habits that the market has allowed. Sellers are finally relenting on pricing as they realize that they can no longer ask for the moon and receive it.”

Contracts Signed Just 1% to 3% Below Asking Price

Louise Phillips Forbes, a top producing agent at Brown Harris Stevens, tells GlobeSt.com that the interest rate increases are impacting the buying power, especially in the under $1 million to $3 million sector of the market.

“However, our sellers are listening to offers, and we are currently seeing contracts being signed at just 1% to 3% off of the asking price,” Forbes said.

“After five straight months of slower existing home sales and new home sales at a two-year low, homebuyer bidding wars are way down – there are bidding wars on 50% of deals this summer vs. 70% of deals in January, according to Redfin, but unemployment is at a 50-year low of 3.5% so consumers are steadier than most headlines suggest.”

Best to Price Home Correctly on Day 1

Meanwhile, home sellers in pandemic homebuying boomtowns like Boise, Salt Lake City and Sacramento increasingly dropped prices in July as buyers left the market.

Boise Redfin agent Shauna Pendleton said in prepared remarks, “My advice to sellers is to price their home correctly from the start, accept that the market has slowed and understand that it may take longer than 30 days to sell. If someone is selling a nice home in a desirable neighborhood, they shouldn’t need to drop their price.”

Ranked just below Boise for price drops, according to Redfin, included Denver (58%), Salt Lake City (56.4%) and Tacoma, Wash. (54.8%)

“Individual home sellers and builders were both quick to drop their prices early this summer, mostly because they had unrealistic expectations of both price and timelines,” Pendleton said. “They priced too high because their neighbor’s home sold for an exorbitant price a few months ago, and expected to receive multiple offers the first weekend because they heard stories about that happening.”

More than 15% of home sellers dropped their asking price in every major U.S. metro, Redfin reported.

Get 5.5% Loan, Hope to Re-Fi to 4.5%

Jeff Taylor, managing director, Mphasis Digital Risk, tells GlobeSt.com, that borrowers are wearied and lenders are feeling the shift as well.

“Many lenders will approve borrowers for loans where housing and non-housing costs can be up to 43% of income, and sometimes higher if their credit score or down payment is strong,” Taylor said. “There is a continued surge in certain markets where borrowers feel confident in their ability to make current mortgage payments on a home at 5.5% hoping to refi in a year when we expect rates to drop back into the 4% range.”

“Borrowers need to truly weigh what they can and cannot afford on a monthly basis. Home affordability headlines don’t tell you what you can afford, your lender does.”

‘A Matter of Time’ Before Tide Turned

Michael J. Romer, Managing Partner of NYC real estate law firm Romer Debbas, tells GlobeSt.com that low inventory, increased demand, record low mortgage rates, record high inflation, and remote work all artificially increased home prices in many areas of the country.

“It was just a matter of time before the tide would turn and, in some areas, it certainly has,” Romer said.

“With mortgage rates recently doubling in such a short period of time, prospective homebuyers have reached their breaking point and sellers have had to respond accordingly. However, metro areas are holding strong as the workforce continues to return and demand remains steady.

“The country is experiencing a housing affordability crisis. Homeownership needs to be incentivized.”

Mortgage Lenders Going Out of Business

Bloomberg’s David Rovella reported last week that mortgage lenders are beginning to go out of business after the dramatic rise in lending rates.

“The wave of failures that’s coming could be the worst since the housing bubble burst about 15 years ago,” he wrote.

“There’s no systemic meltdown looming this time around, mind you, since there hasn’t been the same level of excess and because many of the biggest banks pulled back from mortgages after the financial crisis. But market watchers still expect a string of bankruptcies, and that means a lot of people getting fired.”