Home values plunge in some US cities as mortgage rates rise
Some of the largest US cities in the West have seen home values plunge this summer, a trend that economists say favors home hunters.
The value of a typical home fell 0.3% nationally from July to August and 0.1% from June to July, Zillow said in a report this week. It was the biggest monthly decline since 2011. Los Angeles, Sacramento and San Francisco in California saw some of the steepest declines, with each city recording a drop of 3.2% or more. Salt Lake City, Utah, and Seattle, Washington also saw steep declines of 2.6%.
Residential real estate values are falling in these cities because they have “reached an affordability ceiling,” Zillow senior economist Nicole Bachaud told CBS MoneyWatch, adding that “demand is receding.”
With less competition for a home, buyers today are likely to find more property choices, Bachaud said. It also often makes it easier to negotiate a better price, while sellers are less likely to ask buyers to waive certain eventualities, such as a home inspection, she added.
The typical American home is now valued at $356,054, according to Zillow. The real estate website also found that Birmingham, Alabama; Cincinnati, Ohio; Indianapolis, Indiana and Louisville, Kentucky saw home values increase by less than 1%. That’s because homes in those areas have been valued at $300,000 or less and are now trying to approach the $365,054 benchmark, Zillow said.
Home values are an important indicator of the evolution of home prices in the short term. If values increase, home sellers often ask for a higher price. When home values drop, the same owners will likely lower their asking price.
In recent months, owners have made far more of the latter, economists said. Home prices have fallen by thousands of dollars as sellers face a dwindling number of potential buyers. One in five owners lowered their prices in August, according at Realtor.com. The housing website also reported that the national average home price fell from $449,000 to $435,000 between July and August, marking the biggest month-over-month decline since 2016.
Homebuyers flooded the market earlier this year when mortgage rates were around 3%, sending demand and house prices skyrocketing. Mortgage rates have now climbed to over 6%, forcing potential buyers to bail out to find a home and.
“Even buyers able to afford a home at current rates could feel frozen, waiting for mortgage rates to fall dramatically again, as they did from late June to mid-July, when rates fell. by 50 basis points in just two weeks,” Zillow said. Chief Economist Skylar Olsen said in a statement.
Mortgage rates have risen primarily as the Federal Reserve hasrates in an attempt to fight inflation. Each percentage point increase in mortgage rates adds to monthly payments.
These added costs of buying a home have driven many consumers away, another economist said. The housing market now resembles ‘a college dance where a small number of buyers and sellers team up over a slow song’, Redfin’s Daryl Fairweather said in a statement Friday.