According to national property brokerage firm Redfin, the median home price in the United States experienced a 1.2% decline in February 2023. This marks the first year-over-year decrease since 2012, primarily driven by the impact of elevated mortgage rates on homebuyer demand.
Redfin real estate agent Andrew Vallejo, based in Austin, Texas, which has witnessed one of the most significant home price drops in the country, highlighted the challenges faced by both buyers and sellers.
Higher interest rates have elevated the cost of homeownership for buyers, while sellers are grappling with the realization that their homes are not fetching prices as high as those seen a year ago.
The price decline has attracted more prospective buyers, but they remain cautious due to the high mortgage rates, giving them a stronger negotiating position.
In February, the proportion of homes going under contract within two weeks dropped to 44.9%, down from 60.2% the previous year, as potential buyers weighed their options on whether to make a purchase or wait.
A recent case involved a buyer considering a $395,000 home, which initially appeared attractive compared to a similar property down the block that sold for $460,000 in the previous summer. However, the emergence of a nearly identical home on the market for $370,000 has prompted a reevaluation.
It’s noteworthy that the housing market dynamics shifted in March due to the collapse of Silicon Valley Bank, leading to reduced expectations of further Federal Reserve interest rate hikes.
This, in turn, caused mortgage rates to decrease, rekindling interest among homebuyers. As of Thursday morning, the average 30-year fixed mortgage rate stood at 6.54%, down from nearly 7% at the end of February. This reversal followed a nearly 1% increase in rates during February.
Despite months of decline, home sales began to stabilize in February. Pending home sales showed a modest 0.3% increase on a seasonally-adjusted basis compared to the previous month, although they remained 26% lower year-over-year.
Closed home sales also improved, rising by 1.8% month-over-month on a seasonally-adjusted basis. Year-over-year, closed sales were down 22.5%, a milder decline compared to the start of 2023.
The level of competition among homebuyers remained relatively steady in February, with 45.2% of home offers submitted by Redfin agents encountering bidding wars. While this rate has stabilized over the past four months, it remains lower than the 66.4% observed in February 2022.
However, the number of new home listings in February reached a historic low, aside from the initial pandemic period. Listings fell by 23.3% on a seasonally-adjusted year-over-year basis and declined by 3.5% from the previous month.
Many homeowners hesitated to list their properties due to their locked-in mortgage rates, which were significantly lower than current rates.
Additionally, they observed neighbors lowering their listing prices. In February, 14.2% of homes for sale had reduced prices, though this was a decrease from the peak of 22% in the fall; it still represented more than double the rate seen a year earlier.
Metro-Level Highlights:
- Pending sales experienced the most significant year-over-year decline in Baton Rouge (-69.1%), followed by Allentown (-54.4%), Honolulu (-53.8%), Greensboro (-49.3%), and Las Vegas (-47.9%). However, pending sales rose in Dallas (3%), Buffalo (2.9%), Indianapolis (2.3%), and Cincinnati (1.3%).
- Closed sales saw the most significant year-over-year decrease in Miami (-44.2%), with New York (-39.8%), San Jose (-38%), Baton Rouge (-37.7%), and Nassau County-Suffolk County, NY (-37.2%) also experiencing substantial declines. Conversely, closed sales fell the least in Dallas (-1.3%), Richmond, VA (-7.7%), Fort Worth, TX (-9.6%), Cleveland (-10.1%), and Dayton, OH (-12.8%).
- Median sale prices declined year-over-year in 31 metros, with San Jose (-13.1%), Austin (-12.4%), Oakland, CA (-11.3%), Sacramento, CA (-8.2%), and Oxnard, CA (-7.3%) witnessing the most significant drops. The largest increases occurred in Omaha, NE (11.8%), Knoxville, TN (11.5%), West Palm Beach, FL (11.4%), Columbus, OH (10.8%), and Milwaukee (10.4%).
- New listings decreased the most year-over-year in Allentown (-53.2%), Greensboro (-45.8%), San Jose (-44.2%), Oakland (-43.6%), and Sacramento (-42.7%). Two metros, McAllen, TX (10.1%) and North Port, FL (1.6%), experienced an increase in new listings, while Buffalo remained unchanged (0%). Fort Worth (-2.9%) and Nashville (-3.2%) had the smallest declines.
- Active listings increased the most year-over-year in North Port (103.1%), Austin (78.6%), Nashville (71.7%), Fort Worth (69%), and Tampa, FL (62.5%). The greatest declines were observed in Allentown (-34.4%), Cincinnati (-31.8%), Greensboro (-28.7%), Milwaukee (-26.9%), and Hartford, CT (-22%).
- In terms of competition, Colorado Springs, CO, experienced the most substantial decline, with only 26.9% of home offers by Redfin agents facing competition, down from 79.6% the previous year. Las Vegas (-44.6 ppts), Charlotte, NC (-42.6 ppts), San Antonio (-41.8 ppts), and Raleigh, NC (37.3 ppts) also witnessed notable declines in competition. Providence, RI (2.8 ppts) was the only metro to see an increase in competition, while San Jose (-1.4 ppts), Baltimore (-1.7 ppts), Philadelphia (-7.6 ppts), and Orlando, FL (-8 ppts) experienced the smallest decreases.
