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Prices up in 70% of metros — but that’s a big drop from Q4 

NAR’s latest quarterly home sales report found that most markets are still seeing annual price increases, with the biggest gains in the Midwest and Southeast.

May 9, 2023
4 minutes

Key points:

  • Price growth in the first quarter has slowed compared to the previous quarter, when 90% of metros saw annual gains.
  • Most home sales are occurring in the South, which also saw modest price growth.
  • While growth has slowed or declined in some areas, the trend may be short-lived due to low inventory.

Home prices are still rising annually across the U.S., but the pace has slowed considerably. 

The National Association of Realtors' quarterly report on existing home sales found that prices were up in 70% of the 221 cities analyzed in Q1. The previous quarter, however, 90% of metros saw year-over-year increases. 

The median single-family existing home price was nearly flat from a year ago, dropping a mere 0.2% to $371,200.

The data was consistent with several trends seen over the past several months:

  • The South accounted for the largest share of single-family home sales (46%).

  • Price drops were greatest in the West region (down 5.3%).

  • "Boomtowns" — areas that saw rapid price gains during the pandemic — have subsequently experienced significant price drops.

Of the markets where prices rose, just 7% saw double-digit gains, down from 18% of markets in the previous quarter.

While price growth has slowed or even declined in some areas, that hasn't provided much relief for buyers. With mortgage interest rates remaining stubbornly in the 6-7% range, the monthly mortgage payment on a typical home with 20% down has risen to $1,859 — an increase of more than 33% compared to a year ago. 

Homebuyers in pricier regions may have the best shot at finding a deal, said NAR Chief Economist Lawrence Yun. "Generally speaking, home prices are lower in expensive markets and higher in affordable markets, implying greater mortgage rate sensitivity for high-priced homes." 

That spells good news for buyers in markets like San Francisco and San Jose, where prices have fallen by 10% or more. Still, with a median home price of nearly $800,000, according to the California Association of Realtors, California remains one of the least affordable states. The NAR report also noted that seven of the top 10 most expensive markets in the U.S. were in California.

Other areas with significant price drops in Q1 were cities that saw high migration during the pandemic, which quickly pushed up prices to unsustainable levels. Yun cited Boise and Austin as examples: Over a three-year period, prices rose by an "astonishing" 67% in the two cities, but are now falling fastest among the metros analyzed. 

Austin topped the list of decliners, with prices down 13.5% year over year, while Boise also saw double-digit declines of 10.3%. Phoenix came in third with a 7.3% drop in prices.

"The latest price reductions in these areas have improved housing affordability and led to some buyers returning given the sustained, rapid job creation in their respective markets," Yun noted.

Should buyers wait for prices to fall further?

Will prices continue to drop, giving more buyers a shot at finding an affordable home? 

Don't count on it, said Yun, as long as inventory is constrained. "Due to the intense housing inventory shortage, multiple offers are returning, especially on affordable homes," Yun said. "Price declines could be short-lived." 

That assessment was echoed in a recent CoreLogic report, which forecast bigger gains in the coming year due to low inventory and steady demand.

NAR's report noted that inventory in the first quarter was 40% below pre-pandemic levels, based on numbers from the first quarter of 2019.

And some areas, particularly in the Midwest and Southeast, are continuing to see strong price growth of more than 11% year over year. Cities in Wisconsin and North Carolina were among the metros with the highest gains, ranging from 12% to more than 16%. 

Some good news in Q1

Low inventory and elevated interest rates are making things tough for buyers, but the situation did improve in the first quarter. Recall that in the fourth quarter of 2022, mortgage rates peaked at more than 7%, pushing up monthly mortgage costs. In Q1, those costs were down 5.5% over the previous quarter, and household spending on mortgage payments also decreased slightly. 

For first-time buyers specifically, mortgage payments on a $315,000 starter home with a 10% down payment declined 5.4% from Q4 2022. First-time buyers are still spending a disproportionately high percentage of their income on housing — 37% — but slightly less than they were last quarter.

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