For the first time in what seems like a while, would-be home buyers have something to celebrate: Home price reductions have hit their highest level since 2014.
According to research from real estate platform Trulia, the percentage of listings with at least one price reduction hit 17.3% in August — up from 16.7% in 2017 and the highest point seen in four years. At the metro level, price cuts rose in 58 of the nation’s 100 biggest metros.
The most price cuts were seen in Phoenix, Tampa and Baton Rouge. In Phoenix, more than 20% of listings saw a price reduction in August. On the other end of the spectrum, high-demand markets like California’s San Francisco, Oakland and San Jose saw the fewest cuts in pricing.
A Positive Sign — But Not for All
When you throw in the recent news that home price growth is slowing (not yet declining, mind you) and that inventory may finally be turning around, it seems all signs point to an improving market for home buyers.
But while Trulia housing economist Felipe Chacon says buyers should certainly be “encouraged” by recent events, they should also understand that these price cuts aren’t universal. In fact, they’re more common — and larger — in more expensive markets.
“Not all buyers will benefit equally, and it pays to do research on your preferred neighborhood,” Chacon said. “Price reductions typically aren’t uniformly spread out across a given city — some neighborhoods might have a lot of listings with a reduced price; others may have none. Our research shows that price cuts are much more prevalent in higher-cost neighborhoods, so budget-conscious buyers may have some trouble finding a bargain.”
More Sobering News
It’s also important to factor in the ever-increasing mortgage rates. This week, the average rate on the 30-year fixed mortgage surpassed 5% for the first time in more than seven years.
According to Tendayi Kapfidze, chief economist at LendingTree, the jump in rates will eventually mean lower demand — and lower home pricing as a result.
But it’s not all good news. Rising rates also equal smaller homebuying budgets — which could put a damper on those lower prices. In fact, when comparing the average mortgage payment from 2017 with what today’s average rates would allow for, Kapfidze says borrowers can afford to borrow about 10% less than just one year ago.
“As most buyers budget based on monthly payments, the median buyer is now able to bid significantly less than before,” Kapfidze said. “This means at each price point, the number of buyers is falling, reducing demand. This has had immediate effects on the number of houses sold and will over time reduce the pace of home price increases.”
If rates continue to rise, as those surveyed in Fannie Mae’s recent sentiment index believe they will, it could mean an even bigger impact on home prices in the long run.