Cities that saw soaring home prices during the COVID-19 pandemic are now falling back to earth, as sellers are forced to shed their ‘unrealistic expectations’ about the prices they can ask.

A study published by real estate brokerage Redfin on Monday found that a high share of home sellers dropped their asking price in July, particularly in former pandemic boomtowns.

Boise, Idaho, which was a top destination for West Coast remote workers during the pandemic, saw 70 percent of listings slashed in July, up from just a third a year ago.

In Denver, 58 percent of home listings were reduced last month, while 56 percent of listings in Salt Lake City were dropped from the initial asking price.

‘Individual home sellers and builders were both quick to drop their prices early this summer, mostly because they had unrealistic expectations of both price and timelines,’ said Boise Redfin agent Shauna Pendleton.

‘They priced too high because their neighbor’s home sold for an exorbitant price a few months ago, and expected to receive multiple offers the first weekend because they heard stories about that happening,’ she added. 

The 10 cities that saw the biggest share of listing price reductions last month are seen above

The 10 cities that saw the biggest share of listing price reductions last month are seen above

A housing development is seen in Boise, where last month 70% of home listings were slashed below their initial asking price as sellers confronted their 'unreasonable expectations'

A housing development is seen in Boise, where last month 70% of home listings were slashed below their initial asking price as sellers confronted their ‘unreasonable expectations’

‘My advice to sellers is to price their home correctly from the start, accept that the market has slowed and understand that it may take longer than 30 days to sell. If someone is selling a nice home in a desirable neighborhood, they shouldn’t need to drop their price.’

Although industry data shows that home prices remain higher than they were a year ago nationwide and in nearly every market, listing reductions have increased dramatically as sellers’ lofty expectations meet with cold reality. 

Redfin said that the national share of homes for sale with price drops reached a record high in July. 

None of the 97 cities included in the analysis had fewer than 15 percent of home listings that were reduced from their initial asking price.

More than half of the cities with the biggest share of price drops–Boise, Denver, Tacoma, Sacramento, Phoenix, San Diego and Portland–were among the 20 housing markets that cooled fastest in the first half of 2022.

Redfin notes those markets had attracted scores of eager homebuyers during the pandemic, when tech workers and other white collar workers fled more expensive markets and drove home prices up in smaller cities.

In Denver, 58 percent of home listings were reduced last month

In Denver, 58 percent of home listings were reduced last month

Home prices remain solidly strong, with July's national median sales price of $403,800 representing a 10.8% increase from a year ago, and just below the record-high set in June

Home prices remain solidly strong, with July’s national median sales price of $403,800 representing a 10.8% increase from a year ago, and just below the record-high set in June

Now, however, buyers hold the upper hand in a cooling market, and many sellers are having to cut their asking prices in order to close a deal.

Rising mortgage rates have made homebuyers more hesitant to buy at sky-high prices, and the cooling market has given buyers more inventory to choose from.

The Redfin study found that McAllen, Texas had the lowest share of listing reductions in July, with just 15.7 percent of listings dropped — though that was still more than the 11.7 percent rate seen a year ago.

In a notable exception to the trend, several markets in northern Illinois saw lower shares of price cuts in July than a year ago, indicated that the housing market in Chicago is gaining steam.

Chicago and nearby Elgin and Lake County, Illinois, all saw lower rates of price drops than they did a year ago. 

Though home transactions declined, prices remain solidly strong, with July's national median sales price of $403,800 representing a 10.8 percent increase from a year ago

Though home transactions declined, prices remain solidly strong, with July’s national median sales price of $403,800 representing a 10.8 percent increase from a year ago

The average rate for a 30-year fixed mortgage stood at 5.13 percent this week

The average rate for a 30-year fixed mortgage stood at 5.13 percent this week

The Federal Reserve’s aggressive interest rate hikes to fight inflation have hit the housing market hard by quickly raising the costs to take out a mortgage. 

The 30-year fixed-rate mortgage is averaging 5.13 percent, up from 3.22 percent at the start of the year, according to data from mortgage finance agency Freddie Mac. 

Meanwhile, federal data on Tuesday showed that sales of new U.S. single-family homes plunged to lowest level in more than six years in July.

New home sales tumbled 12.6 percent on the month to a seasonally adjusted annual rate of 511,000 units last month, the lowest level since January 2016, the Commerce Department said. 

June’s sales pace was revised down to 585,000 units from the previously reported 590,000 units.

Sales rose in the Northeast, but dove in the West and the Midwest as well as the South, which had seen the most explosive demand in recent years.

Sales dropped 29.6 percent on a year-on-year basis in July. They peaked at a rate of 993,000 units in January 2021, which was the highest level since the end of 2006.

Existing home sales, which account for the majority of all home sales in the US, also dropped 5.9 percent last month from June to a seasonally adjusted annual rate of 4.81 million — a decline of 20.2 percent from one year ago, according to industry data. 

Still, home prices remain solidly strong, with July’s national median sales price of $403,800 representing a 10.8 percent increase from a year ago, though a slight dip from the record set a month earlier. 

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