As real estate and real estate-related companies continue to cut their workforces, it’s become clear that it’s no mirage — the housing market is indeed cooling. Another sign? The real estate giant Redfin has experienced a nearly 92% drop in stock value since last year.
While homes are still more expensive today than they were before COVID-19 changed the world, demand is slowing, and prices are dropping. Redfin recently released data showing which markets are cooling at the fastest rate. What was a seller’s market is quickly flipping to a buyer’s market in these areas of the country:
|Rank||Metro Area||Median Sale Price|
|2||Las Vegas, Nevada||$416,000|
|3||San Jose, California||$1,375,000|
|4||San Diego, California||$800,000|
|5 (tie)||Sacramento, California||$575,000|
|5 (tie)||Denver, Colorado||$570,000|
|9||North Port, Florida||$450,000|
|12||Raleigh, North Carolina||$435,000|
|13||Cape Coral, Florida||$392,000|
|14 (tie)||Stockton, California||$550,000|
|14 (tie)||Portland, Oregon||$535,000|
Data source: Redfin
Rising interest rates
The most apparent reason for cooling markets is rising interest rates. The Federal Reserve raises interest rates in response to inflationary concerns. The higher the rates, the fewer people compete for the same asset (in this case, housing). Fewer buyers competing for housing means fewer bidding wars and softer prices.
As an example of how rising interest rates have cooled buyer enthusiasm, we’ll look at Austin, Texas. A year ago, if a buyer purchased a $500,000 home in the city, their principal and interest payment would be $2,108 per month, thanks to an interest rate of 3%. Today, that same mortgage would carry a rate of around 6%, and the monthly principal and interest payment would be $2,998. The jump in payment is enough to make some buyers ineligible for a mortgage and others hesitant to jump into the fray.
Formerly hot relocation spots
As COVID-19 raged and more people worked from home, they realized they could live anywhere — as long as they had a virtual job. Hotspots for those migrating workers included places like Las Vegas, Sacramento, Phoenix, and North Port, Florida. Now that rates are on the rise, packing up a moving truck and relocating to another state has become too expensive for many would-be home buyers.
Still warmer than usual
It bears repeating that home prices are still higher than typical and much higher in some areas. However, cooling markets indicate a trend that is likely to spread to other parts of the country. Homes are already remaining on the market longer, and more home sellers have been forced to lower their asking prices. Together, these indicators tell us the Fed’s hopes of driving consumer prices back down may be working.
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Mortgage rates are at their highest level in years — and expected to keep rising. It is more important than ever to check your rates with multiple lenders to secure the best rate possible while minimizing fees. Even a small difference in your rate could shave hundreds off your monthly payment.
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