Home values have dropped from 2022 peak, opening doors for buyers
A new Redfin report found the total value of U.S. homes has dropped $2.3 trillion since June 2022, with the biggest declines in the San Francisco Bay Area.
- Despite the eye-popping six-month drop, home values are still up substantially since the beginning of the pandemic.
- Areas with price adjustments, like San Francisco, are seeing an uptick in buyer interest.
- Underpricing can be an effective strategy for sellers looking to attract buyers.
A new report from Redfin has found that while Americans have lost significant wealth in their homes over the past six months, they've still done well since the beginning of the pandemic.
The report estimates the total value of U.S. homes to be $45.3 trillion at the end of 2022, down $2.3 trillion, or 4.9%, compared to the peak in June. Redfin said it's the largest June-to-December drop in percentage terms since 2008. The estimates are based on analysis of more than 99 million U.S. residential properties.
Despite the recent drop, home values remain roughly $13 trillion higher than in February 2020, right before the official start of the pandemic, said Redfin Economics Research Lead Chen Zhao.
The drop may be a downer for homeowners, but it means buyers — and their agents — might have a better chance of entering the market.
Bay Area prices take biggest hit year-over-year
A notoriously difficult place to find an affordable home, the San Francisco Bay Area had some of the steepest declines in home value the past year, according to the Redfin report.
The value of San Francisco homes fell 6.7% year-over-year, followed by nearby Oakland (down 4.5%) and San Jose (down 3.2%).
As a result, sellers will likely need to adjust pricing, which is good news for agents who have buyers waiting to get into a market where the median price is typically in the $1 million range.
And those buyers are starting to check out the market again after a very slow fourth quarter, said Tim Gullicksen of The Gullicksen Group in San Francisco, which is a part of Corcoran Icon Properties.
One significant change Gullicksen has noticed is the return of traditional pricing. After a long stretch of sellers pricing homes with bidding wars in mind, list prices are now reflecting the reality of the current market.
Sellers still have leverage because of low inventory, but they can't raise the price too high because elevated interest rates are limiting what buyers can afford to pay.
Gullicksen noted that underpricing is proving to be an effective strategy. By pricing their homes slightly under the comps, sellers can generate activity and elicit more bids because inventory remains tight.
"You don't have to get to an accurate, agreed-upon number [from one buyer]," Gullicksen said, adding that if you get five offers, one or two will probably be what the seller is actually looking for.
And for buyer agents in the San Francisco market and other areas dealing with price adjustments, helping clients make the right bid is key. Gullicksen said buyers need to work with their agents to determine the actual value, and not take a mindset of automatically offering less than the list price.
"You've got to do your homework and figure that out," Gullicksen said, noting that not all homes are priced too high for the market conditions. "There are opportunities out there [to bid lower], but you've got to look for them."
More millennials are becoming homeowners
Agents will need to continue courting younger, tech-savvy generations. While millennials account for a relatively small share of home values overall, they made the biggest jump in the past year, suggesting that more members of that demographic are ready to become homeowners.
The total value of U.S. homes owned by millennials rose 26.7% year-over-year to $5.6 trillion in the third quarter of 2022. Generation X saw the second largest increase (+18.4% to $13.9 trillion), followed by Baby Boomers (+12.9% to $18.1 trillion). The Silent Generation experienced a decrease (-6.7% to $4.4 trillion), as many of its members have passed away or moved into retirement homes, according to the report.
It represents a strong rebound for millennials, a group that was seeing a declining share of total home value as recently as 2020.