The tectonic plates of America's major real estate markets continue to shift beneath our feet. Little more than a year ago, unstoppable home price increases seemed to be the new normal just about everywhere. Go, go, go! It was a never-ending party for sellers, and mass anxiety for price-squeezed buyers. But then last fall came signs of a housing slowdown, as big-city prices began to level off—or in some markets actually drop. Was a housing bubble about to burst?
Well, not quite. Nationally home prices still rose 6.9% year over year in April. But here's the thing: That's actually the lowest price growth in five years. And according to the latest data, 1 in 5 metropolitan areas is now seeing decreases in home prices, compared with half as many a year ago. So what are the places moving from a seller's market to a buyer's? The realtor.com® data team set out to find those metros where home prices are falling the most.
There are some surprises on this list—including some of the highest-profile markets in the country (hello, San Francisco Bay Area!). It turns out there is a limit to how high home prices can go, even in some of America's most alluring, if overheated, places.
Some markets are seeing price drops due to overbuilding: This creates too much supply and not enough demand, so prices naturally fall. And just like in past years, in other areas, natural disasters devastated lives, communities, and local real estate.
"A disaster will affect your ability to market" your home, says Orell Anderson, president of Strategic Property Analytics, in Laguna Beach, CA. It can boost home prices and rents in unaffected pockets as locals compete for housing. But it can also hurt an area's image as folks don't want to suffer through another disaster. "The market will demand a discount."
To figure out where prices are down the most, we looked at the change in median list prices on realtor.com from April 2018 to April 2019 in the 250 biggest metropolitan areas.* We filtered out markets where price per square footage was up over that period. And we limited the ranking to no more than three metros per state.
So where are prices declining the most? Buckle up, let's take a cross-country trip.
Median list price: $1.1 million Median list price change: -8.4%
Yes, you read that right. Perennial hottest market in the U.S., San Jose is seeing the steepest declines in home prices these days. For the past few years, home prices in this city at the heart of Silicon Valley have soared at double-digit rates. But last fall, red flags started to appear. Sellers began slashing list prices, with the number of price reductions jumping 200% over the previous year. Now prices are plummeting faster than anywhere else in the U.S.
Time for a quick reality check: None of this means that San Jose has become a bargain. It's still America's most expensive real estate market. But therein lies the problem—prices just shot up too high. From April 2017 to April 2018, median list prices soared a remarkable 28%. And even in the San Francisco Bay Area, what comes up must come down. Eventually.
"When [prices] jump that quick, it can produce a reaction with buyers, who say, 'I can't do it anymore, that is just too expensive,'" says Patrick Carlisle, Bay Area chief marketing analyst at the real estate firm Compass.
Federal tax law changes also played a role. Homeowners can now deduct only up to $10,000 in property and income taxes combined. Plus, the amount of mortgage interest deduction folks can write off on their taxes was reduced. In pricey areas like San Jose, that can translate into a big financial hit.
This has led dwellings to sit longer on the market, climbing from a median 19 days to 27 from April 2018 to April 2019. Meanwhile, the amount of abodes currently for sale has jumped 92%.
Median list price: $681,100 Median list price change: -5.4%
In late 2017, the Thomas fire burned almost 300,000 acres, destroying more than 1,000 homes in Ventura County, part of the Oxnard metro, and surrounding areas (including Santa Barbara County). At the time it was the largest wildfire in California history. And that was just the beginning of the widespread damage—the conflagration damaged ground soil and tree roots, leading to mudslides that wiped out still more homes.
In the disaster's wake, some displaced victims left the area altogether instead of going through the long, painful process of rebuilding. Others who were thinking of moving to the area changed their plans altogether.
Overall rising prices in the area north of Los Angeles are also to blame. Last spring, buyers hit their breaking point, says local real estate agent Kevin Paffrath, of meetkevin.com. With high prices, mortgage rates, and the tax changes, many stayed on the sidelines, lessening demand in the area.
Median list price: $265,000 Median list price change: -5.4%
The 64,000 Texas A&M University students that pour into College Station every fall—plus all of the faculty and staff—need lots of places to live. But builders in pro-development Texas went a bit overboard in recent years. That resulted in a glut of new homes in this market two hours northwest of Houston, pushing inventory up 18.3% year over year and causing prices to tumble.
Eventually, investors are expected to snap up many of these properties and rent them out to students. But it also means buyers have options. So they can take their time finding the right one—and then negotiating the price down.
Median list price: $750,000 Median list price change: -4.9%
Prices are sky-high in this golden metro encompassing all of wealthy Fairfield County, home to some of the toniest enclaves just outside of New York City. But as in California, tax law changes made buying sprawling mansions in uber-wealthy communities such as Greenwich more expensive. That's because the state has some of the highest property taxes in the nation—and now homeowners can't write off nearly as much.
Plus, many of the affluent buyers who might normally head for Fairfield County may be choosing to go to Manhattan instead. That's because the city has had an influx of new, luxury towers going up in recent years—including the flashy, massive development Hudson Yards.
Median list price: $948,300 Median list price change: -4.1%
When California home prices overheated late last year, it was no surprise that San Francisco—the second-most expensive metro in the nation, after San Jose—took a big hit.
Prices here jumped 10% from April 1, 2017, to April 1, 2018, making homeownership a steeper-than-ever climb for ordinary people. And more homes are going up for sale in lower-priced areas nearby, like Oakland, which is pulling the metro's median list price down, says Carlisle of Compass.
But prices may soon surge again. San Francisco–based Uber and Lyft just went public, and Pinterest, Slack, Postmates, and Airbnb might soon follow suit. With all of those initial public offerings, workers could be in line for some windfalls. And what better way to spend all that money than on real estate?
"Some sellers have stopped putting their homes on the market because they want to wait for the supposed rush of [IPO] buyers," Carlisle says.
Median list price: $481,600 Median list price change: -3.5%
The Kilauea Volcano spewed a miles-long lava stream through the Big Island of Hawaii last May. The news was plastered with images of magma tearing through Hawaiian homes, about 700 of which were destroyed. Recovery efforts are expected to cost more than $800 million.
It shattered the image of a Polynesian paradise for many foreign investors, wealthy professionals, and rich retirees drawn to Hawaii as a dreamy second-home destination. And in the months following the eruption, tourism dropped off—a huge deal for a market that relies heavily on the business.
Median list price: $300,000 Median list price change: -3.3%
Last year, a massive algae bloom turned Cape Coral's 400-plus-mile canal system, the crown jewel of the city, into a stinking, toxic green waterway. That wasn't exactly an inducement for buyers in this fast-growing retirement town, and real estate prices fell accordingly.
"It was smelly and ugly," says Mike Lombardo, a local real estate agent at Old Glory Realty. "You couldn't go to the beach because of all the algae. And you couldn't go fishing because the algae was killing the fish. The whole [real estate] system here is built off people coming down here to enjoy the weather and beach."
Median list price: $180,100 Median list price change: -2.9%
Located on the U.S.-Mexico border on the banks of the Rio Grande River, Laredo is one of America's largest inland ports, with more than $200 billion in goods passing through every year. So why is this city packed with customs and border security gigs seeing home prices drop?
It boils down to overbuilding, particularly at the higher end of the market. There's no shortage of new homes sprouting up here, which means existing homes competing for those buyers have to lower their prices.
"Homes for over $300,000 are on the market longer than usual," says Sandra Mendiola Alaniz, local broker/owner of Re/Max Real Estate Services.
Median list price: $143,300 Median list price change: -2.3%
Huntington is a struggling metro that's been badly affected by the opioid crisis. Many are leaving the city, on the Ohio River, for better-paying jobs and opportunities elsewhere. That means there aren't exactly a lot of people clamoring to buy real estate, which keeps prices down.
Prices were low to begin with, so even a small decline can move the needle quite a bit. The median price here dropped $3,300—compared with $105,000 in San Jose.
Median list price: $275,000 Median list price change: -1.8%
When the polar vortex rolled into the Midwest earlier this year, it brought minus 20 degrees to Iowa, turning boiling water to ice in seconds. That rough winter meant the spring buying season got off to a very late start.
"People weren't listing," says Emily Farber, a Realtor at Lepic-Kroeger Realtors. "It was harder for them to take care of exterior maintenance because the weather was so atrocious."
Plus, there wasn't as much new construction in the cold. So other would-be sellers couldn't find a new or trade-up home to buy—so they waited, too.
"It created a snowball effect," says Farber. As it were.
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