Tech woes deflate momentum in Western housing markets

Billie Weiss/Boston Red Sox/Photographer: Billie Weiss/Bosto

Home price growth increased by its slowest pace since 2019 in February, largely driven lower by annual depreciation in several Western states, according to CoreLogic.

But while seven states, all located in the Pacific and Mountain regions, posted drops in property values from a year ago, housing costs in other parts of the country reported growth by as much as 11% in "a tale of two housing markets," according to CoreLogic Chief Economist Selma Hepp.

"Declines in the West are due to the tech industry slowdown and a severe lack of affordability after decades of undersupply," she said in a press release. 

"The consistent gains in the Southeast and South reflect strong job markets, in-migration patterns and relative affordability due to new home construction."

Nationwide, prices increased on an annual basis by 4.4%, according to CoreLogic's Home Price Index, rising every month for the last 11 years. But the pace of growth slowed from January, when the HPI showed prices rising by 5.5%, and was down from a much larger surge of 20% in February 2022.

Home prices registered a year-over-year decline out West in California, Idaho, Montana, Nevada, Oregon, Utah and Washington, compared to a total of three states a month ago. The District of Columbia also posted price depreciation in the last two indexes. 

Turbulence in the technology industry, as well as already elevated prices compared to other parts of the country, has poured cold water on the once-hot housing market in the Western U.S., where many companies base their operations, a recent report from Redfin similarly found. 

Falling values of tech stocks, which buyers often use to fund down payments, have capped what many could afford in markets, such as Seattle and San Jose, California. At the same time, layoffs have also been widespread, with more than 121,000 tech workers losing their jobs in the first three months this year, according to TechCrunch.

Furthermore, four of the top five markets CoreLogic deemed at very high risk of falling prices over the next 12 months were located in the Mountain region, "led" by three Utah cities: Provo, Ogden and Salt Lake City. Lakeland, Florida, landed in the fourth spot, followed by Boise, Idaho. 

On the other end of the spectrum of the CoreLogic HPI, values accelerated the most in Florida, Maine and South Carolina, up annually by 11.3%, 10.3% and 9.2%, respectively. Three other Southern states, Alabama, Georgia and North Carolina, also posted gains of over 7%.

Data for CoreLogic's latest HPI only includes numbers collected through February, and did not reflect the aftermath of developments in March, such as effects of the failure of Silicon Valley Bank on local economies. The bank was a leading financial institution serving venture capitalists, fintechs and other startups, and its shutdown further exacerbated worries in the tech industry's near-term outlook.

While annual price growth may be decelerating, CoreLogic's data showed signs of a turnaround more recently, with upward momentum on a monthly basis. Housing costs increased by 0.8% nationwide in February, up from 0.2% a month earlier. In December, prices had dipped 0.4% from November.

Decreases in mortgage rates brought many buyers into the market in the first few weeks of the year, and higher interest helped lead prices upward. 

"Pent-up home buyer demand is responding favorably to lower rates in many markets. This trend holds true even in the West, leading to a solid monthly gain in home prices in February," Hepp said, adding that the trend possibly suggests that "prices in most markets have already bottomed out."

Still, with volatility a running theme over the past 12 months in the housing market, consistent trends have yet to take hold. Interest rates subsequently headed back upward in February, and the full impact of that surge might only become apparent weeks later. And after mid March's banking industry turmoil, rates fell again, with Freddie Mac's benchmark reading for a 30-year mortgage now coming in lower for three straight weeks.

As recently as December, CoreLogic forecasted that home prices would likely register negative annual growth by spring of this year. In the latest HPI, though, it predicted housing costs would rise between February and March by 0.2%. Over the next 12 months, CoreLogic forecasts home prices will increase by 3.7%.