While lower home prices are a dream come true for buyers, they’re a nightmare for those who’ve paid up for properties in the past year, only to see their values decline shortly thereafter. For example, the price of a typical home in San Francisco is down $81,250 from 2022 — meaning those who bought at the peak have lost an average of $223 in home equity every day since then.
“Buyers who were determined to secure a home at the height of the pandemic buying frenzy are now feeling the market’s one-two punch: First by overpaying and now in home value loss,” Point2’s Andra Hopulele wrote in the report.
Exorbitant borrowing costs are ruining the housing market
Mortgage rates have dipped slightly since late October but remain near their highest levels since 2007. Restrictive rates are crushing demand since buyers either can’t afford a mortgage or don’t want to pay up, while many owners are reluctant to sell since they’d then become buyers.
A lack of willing buyers has put significant downward pressure on home prices for the first time since 2015. The declines are most evident in markets that boomed during the pandemic.
“As mortgage rates choke buyers’ attempts at homeownership, home prices ground to a halt in many cities, and they’re dropping fast in others,” Hopulele wrote. “In fact, it’s the markets that rose the fastest that are now entering correction territory at the highest speed.”
Affordability challenges will likely remain until inflation falls back to normal levels. At that point, the Federal Reserve may be willing to cut interest rates, which would trickle down to mortgage rates. Even still, homes might not be affordable for middle- to lower-income families for years.
“Let’s just say they cut 150 basis points. OK, so now you’re talking about a still 6%-something mortgage,” said Mike Skordeles, the head of US economics at Truist, in a recent interview. “It’s not cheap, and it’s certainly not as cheap as it was a couple of years ago.”
25 cities where home prices are falling
Homebuyers on the hunt may want to consider housing markets where property values have fallen in the last year, although they also run the risk of losing equity value right after buying.
Below are the 25 metropolitan areas among the 100 largest US cities where single-family home prices are down in the past 12 months, along with each city’s year-over-year price change, median home prices in 2022 and 2023, as well as overall and average daily value losses from 2022.