Home prices have fallen for the first time since 2012 as affordability concerns decimate buyer demand.
The median U.S. home sale price dipped by 1.2% to $386,721, the first annual decline in a decade, Redfin reported.
“Buyers are struggling because higher interest rates have increased the cost of homeownership, and sellers are struggling because they’re still adjusting to the fact that their home won’t sell for what their neighbors’ did a year ago,” said Andrew Vallejo, a Redfin real estate agent.
Prices are cooling, but after soaring to record heights after the pandemic, they’re still historically high. The cities with the biggest declines are pandemic hotspots seeing corrections after their boom moment. Two such cities, San Jose and Austin, saw declines twelve times the national rate.
The result is a mixed bag– prices are still high and inventory is limited, which is good news for sellers, but sinking demand gives buyers an edge. House hunters who can afford the monthly payment in a high-rate environment can snag deals and concessions.
The pool of Americans who can afford to buy is small and skewing older and wealthier.
First-time homebuyers are still struggling to find affordable starter homes. A NerdWallet analysis recently found that Pittsburgh and Cleveland are the only two large cities where first-time buyers can buy a house that is priced at no more than three times their household income, a classic rule of thumb.
“In most locations, looking only at homes with prices three times your income right now is unrealistic,” Elizabeth Renter, senior writer and data analyst at NerdWallet, said. “Your search results would be nearly empty.”
March data will likely show a shift, however. Buyer demand increased in the wake of Silicon Valley Bank’s collapse, which led to 10-year Treasury bonds falling to their lowest level since early February. Rates fell alongside them, and purchase demand soared.
It’s not clear how long that trend will hold. Analysts are mixed on what the Fed will do at its meeting this week. Chairman Jerome Powell had hinted at greater rate hikes in the future, but that was prior to SVB’s collapse and new inflation data.
Some experts now expect the central bank to either push another small increase or pause rate hikes entirely. Economists at Nomura Securities even suggested a rate cut may be on the table.
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