Thinking of Buying? These Cities Are Among the Fastest-Cooling Housing Markets in the Country

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  • The markets cooling the fastest represent the areas most popular with home buyers during the pandemic.
  • Boise, Denver, and Salt Lake City top the list.
  • It may be a waiting game for home buyers as sellers realize they're going to have to drop their asking prices.

What goes up must come down, and that includes housing prices.

As potential home buyers think twice about whether now is the right time to buy, sellers in some areas are dropping their prices. The red-hot housing market ushered in by the pandemic is now cooling.

And according to Redfin, the areas of the country most popular with home buyers early in the pandemic are now cooling the fastest. Sellers in places like Boise, Denver, Salt Lake City, and Tacoma are coming face-to-face with the reality of buyers too nervous to start bidding wars.

These 15 metro areas have had the largest percentage of price drops in 2022:

Metro area Percentage of homes with a price drop in June 2022 Percentage of homes with a price drop in June 2021
Boise, Idaho 61.5% 25.7%
Denver, Colo. 55.1% 31.7%
Salt Lake City, Utah 51.6% 22.8%
Tacoma, Wash. 49.5% 32.0%
Grand Rapids, Mich. 49.3% 22.5%
Sacramento, Calif. 48.7% 26.5%
Seattle, Wash. 46.3% 25.8%
Portland, Ore. 45.7% 27.9%
Tampa, Fla. 44.5% 28.6%
Indianapolis, Ind. 44.1% 32.5%
Phoenix, Ariz. 43.6% 16.5%
San Diego, Calif. 43.3% 21.0%
Stockton, Calif. 42.9% 19.8%
Austin, Texas 41.6% 14.9%
Cape Coral, Fla. 41.2% 21.5%
Source: Redfin

What’s going on with these price drops?

In the midst of the pandemic, the U.S. went through the shortest recession on record, lasting just two months, according to the National Bureau of Economic Research. Now, it appears that rising interest rates and the possibility of another recession are causing buyers to think twice.

The idea of taking on a higher-than-expected mortgage payment during a recession is enough to kill a home buyer’s passion. But those aren’t the only factors leading to the percentage of sellers forced to lower their asking prices. Here are other potential causes.

Bidding wars

For months, home sellers have watched as a horde of buyers got into bidding wars over other houses in their neighborhoods. It's natural for some of those sellers to believe their own property will sell for just as much and to price their home too high from the start. It's only when they figure out that buyers aren't quite as excited as they were a few months ago that they drop the price.

Agent miscalculation

Top real estate agents have had it good since the early days of the pandemic. It's easy to get a new listing when the seller believes they're sure to receive top dollar for the property. It's possible that agents could not see the cooling market on the horizon and helped their clients set the asking price too high. It's also possible that some agents "fluffed" the price up a bit in hopes of getting the listing.

Rising interest rates

In an effort to avoid out-of-control inflation, the Federal Reserve has methodically raised the prime rate, which in turn, raises the interest rate for consumers. Rising interest rates can make all the difference to a buyer.

Let's say a buyer works their monthly budget and decides the most they can afford to pay for a mortgage is $2,000 a month. That includes principal, interest, property taxes, and homeowners insurance. For the sake of this illustration, we'll say property taxes come out to $417 per month, and homeowners insurance is $100 per month. We'll also assume that the buyer takes out a 30-year mortgage and puts 20% down on the house, avoiding private mortgage insurance. That leaves them with $1,483 to pay monthly toward principal and interest.

Here's how much house the home buyer can afford as interest rates rise:

Interest rate 2.99% 3.99% 4.99% 5.99%
Price of home within buyer's $1,483 monthly budget $440,000 $390,000 $345,000 $310,000
Source: author's calculations

To stay within budget, the buyer in this example must spend less. While people might have been willing to take out a larger mortgage when interest rates were at historic lows, that is simply not the case for many today. If you want to see what you might be able to afford, you can play around with numbers specific to your own situation with our mortgage calculator.

There's no doubt that some markets are cooling faster than others. For buyers waiting in the wings for a chance to become a homeowner, it may be the best possible news.

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