Home sellers across the country — including those in formerly scorching hot pandemic-fueled markets — have had to adjust expectations and drop prices as home buyers lose purchase power to rising mortgage rates. More than 40% of home sellers in Salt Lake City; Boise, Idaho; Sacramento, California, and other areas where home price appreciation ballooned during the height of Covid-19 were forced to drop prices in May, according to a Tuesday report from Redfin.
The report shows homebuyers are losing purchase power and are backing off the market as home prices continue to rise and mortgage rates surge upward.
“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 Daryl Fairweather, Redfin’s chief economist, according to a statement. “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. As more sellers come to terms with the slowing market, fewer homes will have price drops.”
Of the 108 metropolitan areas analyzed by Redfin, with 47.8%, Provo, Utah, had the largest share of homes for sale with a price drop in May. Tacoma, Washington (47.7%), Denver (46.9%), Salt Lake City (45.8%), Sacramento (44.3%), Boise (44.2%), Ogden, Utah (42.6%), Portland, Oregon (42.0%), Indianapolis, Indiana (41.9%), and Philadelphia (41.2%), rounded out the top 10.
Provo, Boise, Salt Lake City, Sacramento and Ogden also were the top five metro areas with the biggest increase in share of listings with price drops from a year earlier, with roughly 12% of listings in Provo and Boise, and roughly 20% in Salt Lake City, Sacramento and Ogden undergoing price drops in May 2021.
Provo, Salt Lake City, Boise and Ogden also are among the top 10 places where prices increased the most during the pandemic. Year over year, from May 2021 to May 2022, prices rose 65.7% in Provo to a median sales price of $550,000, 56.2% in Salt Lake City to $556,000, 66.7% in Boise to $550,000 and 57.2% in Ogden to $500,000.
Experts attribute the massive price increases to the large influx of out-of-town buyers. According to Redfin, migration into the four cities nearly tripled throughout 2020, however, the trend has started to reverse with Salt Lake City seeing a net outflow during the first quarter of 2022.
Nearly half (53) of the 108 metros in the analysis saw more than 25% of home sellers drop their asking price in May, and more than 10% of home sellers dropped their price in all 108 metros, driving the national share of price drops to a record high. Overall, the share of homes with a price drop increased from a year earlier in 102 of the 108 metro areas analyzed. The share of homes with a price drop declined year over year in McAllen, Texas; Elgin, Illinois; Chicago; Fresno, California; Lake County, Illinois and Springfield, Massachusetts.