Housing prices dropped from February 2022 to last month, marking the first annual decline since 2012 and what could be a harbinger for bigger declines in the year to come.
The median U.S. home sale price fell 1.2% in February to $386,721, according to Redfin.
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The drop comes as the Federal Reserve’s interest rate hikes have driven up mortgage rates and caused demand to fall off and home sellers to lower prices.
“Buyers are struggling because higher interest rates have increased the cost of homeownership, and sellers are struggling because they’re still adjusting to the fact that their home won’t sell for what their neighbors did a year ago,” said Andrew Vallejo, a Redfin real estate agent in Austin, TX.
“The drop in prices is bringing more house hunters off the sidelines, but they’re in no rush because rates are high, and they have the upper hand,” he added.
The report also showed that seasonally adjusted pending home sales were down by 26% in the 12 months ending in February, and seasonally adjusted new listings fell more than 23%.
Redfin’s report did note that last week’s collapse of Silicon Valley Bank could have implications for March’s housing prices. The shock to the banking system is expected to undo the Fed's plans to keep hiking interest rates, which has caused mortgage rates to fall a bit, bringing more buyers into the market.
Some economists expect bigger declines in home prices this year as some overheated housing markets come back down to earth.
Goldman Sachs researchers earlier this year predicted that housing prices in Austin will fall by more than 15% this year alone. Likewise, Phoenix, Denver, and Seattle will see home prices dropping more than 10% this year and falling in 2024, as will the California cities of San Diego and San Francisco, the report reads.
San Jose, California, for instance, saw median sales prices fall a whopping 13.1% in February from a year ago, according to Redfin.
The Redfin report gives a bit of an indication of what to expect next week when the National Association of Realtors releases its February existing-home sales data. Those reports have shown existing home sales are plummeting, but the drop off in demand hasn’t yet translated to price declines.
January sales were down a whopping 36.9% from the year before, according to NAR’s last report. The median price of an existing home in January was $359,000, a growth of 1.3% from the year before. Additionally, homes typically remained on the market for 33 days in January, an increase from 26 days in December and 19 days in January 2022 — indications of a worsening housing market.
After surging above 7%, mortgage rates are now at 6.6% for a 30-year fixed-rate mortgage, according to Freddie Mac. Following SVB’s collapse, that marks a 0.13 percentage point decline from the week before.
The flagging housing market is also filtering through to the labor market.
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The construction industry reported just 248,000 job openings in January. That is a decrease of a whopping 240,000 jobs from the month before and represents a 37.4% decline from a year ago, according to data recently released by the Bureau of Labor Statistics.
Anirban Basu, chief economist for Associated Builders and Contractors, described the plunge in construction jobs as “simply shocking.”