The real estate market in the United States is currently experiencing a split! What kind of split is happening? This is likely news that many buyers are eager to hear: there is an increasing number of homeowners lowering their prices.
While overall home prices across the country have been on the rise, sellers looking to reduce prices in order to sell their houses quickly this summer are becoming impatient. High interest rates, expensive home insurance, and property taxes are causing many buyers to hold off and wait for rates to drop further before making a move. As a result, in cities where there is a relatively higher inventory of homes on the market, sellers are willing to compromise to facilitate transactions.
On the other hand, in areas with limited inventory, prices are still on the rise, with some experiencing double-digit percentage increases! So where are these significant price drops and increases happening? Let’s take a look.
Starting with cities where prices are dropping, according to Realtor.com’s report, the median home price in May this year reached $442,500, compared to $441,000 during the same period last year, indicating a slower growth rate.
Among the 50 largest cities in the US, 20 cities have seen year-over-year declines in home prices since last year, with some of the biggest price drops in May occurring in metropolitan areas that may come as a surprise. Topping the list is Miami, where the median home price plummeted by 11.2% compared to the same period a year ago, with the current median price at $439,000.
In summary, among the 11 cities with the largest price drops nationwide, the Southern region has 6, the Western region has 3, the Midwest has 2, and the Northeast has none.
The Southern region has seen a flatlining of listing prices compared to the same period last year, as the rapid growth in housing inventory in recent months has dampened price increases. However, the Western region saw a slight increase of 0.8%, the Midwest had a 4.4% increase, and the Northeast saw the largest jump, with a 6.1% rise in prices.
It is important to note that these are statistics from Realtor.com, and different databases may show different results, thus serving as a reference point for readers. However, the price drops in the Southern region, particularly in cities in Texas and Florida, are quite significant, as most reports mention the price drops in these two states. Therefore, friends looking to invest in these states may now have a good opportunity.
Moving on, the city with the second-largest price drop is Denver, Colorado, with a 6.3% decrease, and a median home price of $639,000; the third city with a price drop is Seattle, with a 5.5% decrease and a median price of $777,000.
Following them are Kansas City, Missouri, with a 4.9% drop in prices and a median price of $440,000; fifth is Oklahoma City, Oklahoma, with a 4.3% drop and a median price of $339,000.
Next is the million-dollar city – San Jose, where the core city in Silicon Valley saw a 4.0% annual decrease, with a median price of $1.469 million, reflecting a still relatively high pricing.
Tampa, Florida, ranks seventh with a 3.2% decrease and a median price of $425,000; Austin, Texas, with a 3.1% decrease and a median price of $565,000; Detroit, Michigan, with a 3.0% decrease and a median price of $260,000; San Antonio, Texas, with a 2.6% decrease and a median price of $348,000; finally, Raleigh, North Carolina, with a 2.6% decrease and a median price of $462,000.
Are any of these cities on your list for potential investment? While it’s hard to say if now is the best time, it’s definitely an opportunity to consider. With prices having increased for a long period, these areas with price drops offer rare opportunities for buyers to negotiate, allowing them to further evaluate their options.
So why are these cities experiencing price drops? The simplest reason is the increasing inventory of homes available for sale. Compared to last year, the number of homes being listed for sale has significantly increased, growing by 35.2%, marking the seventh consecutive month of growth.
Additionally, in May, the number of newly listed homes increased by 6.2% compared to the same period last year. Homes are staying on the market for an average of 44 days, which is one day longer than last year, indicating a slowing of sales pace. However, this number is still 8 days faster than before the pandemic, suggesting that the market’s sales velocity is relatively rapid.
It must be acknowledged that the market still leans towards being a seller’s market. Even with a notable increase in homes available for sale, the active inventory of homes for sale in the first five months of this year is at its highest level since 2020. However, this year’s inventory is still 34.2% lower compared to the typical levels from 2017 to 2019.
Particularly notable is the surge in homes priced between $200,000 and $350,000, which outpaced the increase in inventory of homes at mid-high price levels. The inventory of lower-priced homes has grown by 46.6% compared to last year, surpassing even the 41.0% increase from the previous month. This significant increase is mainly driven by the Southern region, where many smaller, more affordable properties have been listed.
In May, the inventory in the four major regions of the US was more active compared to the previous year. Listings in the South increased by 47.2%, the West by 34.5%, the Midwest by 20.5%, and the Northeast by only 9.4%. This trend further emphasizes why the list of cities with the most substantial price drops is concentrated in the South, while the Northeast has none.
Furthermore, when comparing the current inventory to May in the years 2017 to 2019 pre-pandemic, the West showed the smallest inventory difference, decreasing by 21.2%, followed by the South at 22.1%. In contrast, the Midwest and Northeast exhibited larger gaps, with reductions of 52.0% and 60.0%, respectively. The wider the gap, the more challenging it is for prices to drop.
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In fact, compared to last year, the region experiencing the largest increase in available inventory among the 50 largest metropolitan areas is Tampa, Florida, with an 87.4% increase, followed by Phoenix with 80.3%, and Orlando, Florida, with a 78.0% increase.
However, the inventory levels in most metropolitan areas are still lower than pre-pandemic levels. Among the top 50 metropolitan areas, only 12 had inventory levels higher in May than they were before the pandemic. This is a significant improvement, with an additional 5 areas recording increased inventory compared to April, including Austin, which saw a 33.6% increase; San Antonio with a 31.8% increase; and Denver with a 22.0% increase. Austin, San Antonio, and Denver are all cities listed among those with recent price decreases.
Looking at which metropolitan areas saw the highest increases in new listings, Seattle was up by 37.3%, San Jose by 26.5%, and Tampa by 22.3%. Seattle and San Jose were also on the list of cities with recent price drops.
Currently, aside from searching for listed homes with price drops in these areas with higher inventory, another opportunity lies in seeking properties that are in need of moderate renovations. As long as the location is acceptable, such properties that require some repairs could potentially be purchased at a good price.
Buyers are facing considerable pressure with high-interest rates and various expensive fees, leading to low motivation to make purchases. Therefore, many real estate agents now advise sellers to renovate their homes as much as possible before listing them, as this can lead to faster sales and lower chances of price reductions. However, on the flip side, if buyers believe that despite needing some repair work, the price can be negotiated lower and the repairs won’t require too much money, this may present a cost-saving opportunity. The key is to consider whether the price drop is enough to cover the renovation costs; for instance, a $50,000 drop in price when renovations cost $100,000 may not be a tempting Good Deal.
Next, let’s take a look at which areas are experiencing the most significant price increases. As inventory increases, price drops follow; conversely, areas with lower inventory are more likely to experience price hikes. Consequently, among the five cities with the highest price increases, five are in the Northeast, two in the Midwest, two in the West, and just one in the South.
Given that we’ve seen that the Northeast has the least available properties for sale, it naturally drives up prices. The city with the largest price increase is Buffalo, New York, with an 18.6% increase and a median price of $300,000; second is Cleveland, Ohio, with a 15.9% increase and a price of $274,000.
Third is St. Louis, Missouri, with a 10.9% increase and a price of $312,000; Pittsburgh, Pennsylvania, with a 10.8% increase and a price of $264,000. The top four cities all have double-digit percentage price increases. Fifth on the list is Philadelphia, Pennsylvania, with a 9.3% increase and a price of $382,000. These areas with significant price increases mostly feature prices below the national median home price.
In sixth place is Los Angeles, the most expensive city on the list, with an 8.5% increase and a price of $1.248 million; followed by Providence, Rhode Island, with an 8.5% increase and a price of $586,000.
Eighth is Memphis, Tennessee, with a 7.5% increase and a price of $350,000; ninth is New York City, with a 7.5% increase and a price of $789,000. Lastly, Riverside, California, records a 6.8% increase and a median price of $620,000.
This list vividly demonstrates the significant influence of housing inventory on prices, with the number of days a listing spends on the market also heavily impacted. In the South, where inventory has seen the most significant growth in recent months, the typical listing time for homes in May increased by four days compared to the previous year. However, the Midwest reduced by 3 days, the Northeast by 5 days, and the West by 2 days. While homes are spending less time on the market compared to last year, the South, where there is a larger inventory, still sees listings lingering for the longest duration.
The US government has recognized the severity of the housing shortage issue. As previously discussed, one of the most critical issues for voters in the recent US election, especially among the younger Generation Z, was housing. As a response, US Treasury Secretary Yellen recently announced a new initiative, which plans to provide an additional $100 million over the next three years to offer loans for thousands of affordable housing units.
The Treasury Department’s new measures also include enhancing guidance for cities and states on how to use post-COVID recovery funds to increase housing supply, as well as reducing administrative procedures and paperwork related to investment programs for affordable housing within government departments.
The president of the National Association of Home Builders, Carl Harris, commended the Biden administration’s efforts to boost housing supply. However, Harris also stressed that the most effective way to increase housing construction is to reduce regulations on new construction. He urged the Biden administration to eliminate inefficient local land zoning rules and adopt reasonable and cost-effective building codes, which would enable builders to rapidly increase housing supply and reverse the escalating housing cost curve.
Back in April, Harris strongly criticized the Biden administration for preventing federal insurance from being provided for new home mortgage loans unless the houses were built in compliance with the 2021 International Energy Conservation Code. Harris believed that this nationwide mandate was “meaningless” and would significantly increase housing costs without providing any substantial energy-saving benefits.
Increasing housing supply is never a straightforward dilemma and often involves conflicting interests from various parties. Resolving this issue requires comprehensive consideration, and with the crisis looming, the general public can participate in addressing the problem by using their voting power. Reviewing candidates’ policies, especially for our Chinese friends, is crucial – one should not relinquish their voting rights, as it is one of the responsibilities of being a citizen. ◇