Price cuts hit the pandemic’s hottest housing markets: Redfin

The real estate hot spots during the pandemic are among the metropolitan areas with the largest share of home listing price reductions in May, Redfin found.

Nearly half of homes for sale in Provo, Utah, 47.8%, had a price drop in May, the highest share among the 108 locales Redfin analyzed. Next was Tacoma, Washington at 47.7%, followed by Denver (46.9%), Salt Lake City (45.8%), Sacramento, California, (44.3%), Boise, Idaho (44.2%), Ogden, Utah (42.6%), Portland, Oregon (42%), Indianapolis (41.9%) and Philadelphia (41.2%).

Seattle and Harrisburg, Pennsylvania also reported a more than 40% share of reduced prices.

The large share of price drops in several of these cities is not surprising, given their appearance on a list of the most overvalued areas in the nation, compiled by Florida Atlantic University and Florida International University. Boise landed at No. 1, Ogden at No. 3, Provo at No. 7 and Salt Lake City at No. 10.

"There are two kinds of sellers in today's market: Those who already know the market has cooled, and those who are learning about the cooling market as they go through the selling process," said Redfin Chief Economist Daryl Fairweather. "The former wants to sell quickly before the market slows further and they’re willing to price slightly below comparable homes in their neighborhood right away, and the latter may have to drop their price if their home doesn't attract buyers within a few weeks."

However, as sellers start to accept the new housing market realities, listing prices will adjust as well, so fewer reductions will be needed, Fairweather said.

More than 25% of home sellers dropped their asking price in half of the markets tracked in May, with over 10% in all 108 metros doing the same. That drove the national share of price drops to a record high for the four weeks ended June 12, when 22.4% of sellers undertook a reduction, Redfin previously reported.

Price drops are needed as the nation's economic tide has changed direction due to inflation, a separate Redfin report stated.

Potential buyers on a $2,500 monthly budget lost nearly $120,000 in spending power between the end of 2021 and now because mortgage rates have doubled, a separate Redfin report said.

A buyer can afford a $399,750 home at a 30-year conforming mortgage rate of roughly 6%, the mark that was topped last week according to both Zillow and Black Knight Optimal Blue; Freddie Mac's weekly survey reported an average of 5.78%. That's about $117,750 less than the $517,500 home the same budget could have bought at the end of last year when rates were in the area of 3%.

Nationwide, 45.6% of homes for sale are affordable on a $2,500 monthly budget with a 6% interest rate, compared with 61.6% if rates were still at 3%.

"The increase in monthly payments means many house hunters now need to consider smaller homes — perhaps farther from their ideal neighborhood — or stick to renting if they're priced out of the market altogether," Fairweather said. "And for sellers, smaller homebuyer budgets mean they can no longer expect to get top dollar for their home.”

The month-to-month increase in May's median sales price was the smallest since Redfin started tracking this data in 2012. Prices rose 1.5% compared with April, but 14.8% over May 2021, ending the month at $430,600.

"The good news is that cheap debt is no longer fueling unsustainable home price growth, and existing homeowners are in a good position, holding record high home equity with debt financed at record low mortgage rates," Fairweather said.

North Port, Florida, had the nation's largest price growth, rising 30.5% since last year to $475,000. Tampa, Florida, came next at 28.1%, followed by Las Vegas (26.8%), Knoxville, Tennessee (25.9%), and Orlando, Florida (25.8%).

No metros saw price declines in May, Redfin said.