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U.S. Housing Markets With the Biggest Price Drops

A decade-long seller’s market is coming to an end as housing prices plummet. This chart shows how much the market is down in 60 cities.
A "for sale" sign stands outside a home.
Posted at 8:52 PM, Nov 04, 2022

According to the American Enterprise Institute's Housing Center, home prices are finally declining after 10 years of a seller's market. The drop is the result of a marked increase in interest rates and constant quality home price appreciation, also called HPA, since January 2020.

Price Changes In The Largest Cities

The seller's market was extended by the limited supply of homes on the market, a sharp increase in remote work and investors seeking homes as long-term investments. However, AEI anticipates that this will change, predicting that the seller's market will end in 2023.

Cities out west top the list with the highest declines in home prices, especially in the northwest. Some of these areas were the most expensive prior to the hot post-COVID housing market. This left them vulnerable when 30-year mortgage rates doubled to more than 7%.

San Jose, California, experienced the most significant decline, with home prices dropping by nearly 11% between April and September. Nearby San Francisco is next, falling 8.5% from record highs

.The California Association of Realtors predicts the prices in the Bay Area will continue to fall, potentially dropping nearly 9% more in 2023. They also expect home sales to slow as the market cools.

Home prices in Seattle — where median prices jumped 18% from approximately $710,000 in April 2021 to $840,000 in April 2022 — fell 8.2%. The area's housing market is in flux for the first time in nearly a decade. 

"[The interest rate] really has an impact on the amount of monthly payments for borrowers to the point of, in some cases, the payments are up more than 50%," Doug Mielitz, vice president of mortgage production at Seattle Bank, told Seattle's KING 5 news.

Denver, San Diego and Portland, Oregon, all saw prices fall more than 5%, while Las Vegas was also nearly among them. Phoenix, Colorado Springs and Sacramento round out the top 10 cities with the most significant drops, with prices falling more than 4% in each.

Where Else Are Home Price Decreases Expected?

Ed Pinto, AEI's Housing Center director, predicts that the trend will continue to other markets, particularly in the Northeast.

"The expensive parts of the market are the first to decline because they suffer most when the Fed takes away the punchbowl and rates rise," Pinto told Fortune. "That's because high-income buyers borrow in the private markets, and when rates increase, they have a harder time qualifying for home loans than lower- and middle-income borrowers who get Fannie Mae, Freddie Mac and FHA loans."

Homeownership Is Still Unattainable For Many

Even with home prices trending downward, many current renters cannot afford a starter home. According to Point2, which covers real estate market trends and news, renters in 15 of the 50 largest U.S. cities earn less than half the income necessary to purchase a home in those places.

As you can see in this chart from Point2, several of these cities are those in which home prices have dropped significantly.

Homes ranging from $100,000 to $250,000 were once considered "entry-level." However, only 15 of the 50 largest cities in the country still have starter homes priced at $200,000 or less.

Incomes and home prices are largely unbalanced in these locations. For instance, the median starter home price in Seattle, as of September, was $645,382. With a 20% down payment ($129,076), a first-time homebuyer needs an annual income of $162,361 to keep up with their payments. However, the median income of renting households in Seattle is only $70,164, according to Point2's data.

Scarce inventory and high interest rates are also affecting affordability. Whether the downward trend and cooling market will be enough to change the landscape remains to be seen.