Housing market is cooling down: Here are the cities where prices are dropping the fastest

home for sale
Photo credit Getty Images

After being red hot during the pandemic, the housing market is showing signs of cooling off - especially along the West Coast.

A new report shows housing markets in northern California are cooling faster than anywhere else in the United States, amid high mortgage rates and a faltering stock market.

The analysis by real estate firm Redfin ranked the 100 most populous U.S. metropolitan areas based on factors including median sales prices, year-over-year inventory changes and speed of home sales between February and May 2022.

All 10 of the housing markets cooling fastest are in the western U.S. and half are in northern California, including San Jose, Oakland and San Francisco -- the most expensive metros in the country with the typical home selling for over $1 million and many selling for well over $1.5 million.

San Jose is cooling at the fastest clip, with measures of homebuyer demand and competition dropping off quicker than any other major metro this year. The Bay Area is cooling quickly due to high mortgage rates, which hit pocketbooks harder in pricey areas, and the slumping stock market, a factor that’s particularly impactful in tech hubs where a lot of residents are compensated with equity, according to Redfin.

Other West Coast cities on the list include Seattle, Denver, Tacoma and San Diego. The influx of out-of-towners, along with a limited supply of homes for sale, caused home prices in those places to rise rapidly, sending them from affordable to not-so-affordable, Redfin said.

The cooldown is largely because mortgage rates nearly doubled in the first half of the year, reaching nearly 6% in June, the Redfin report noted. That caused the monthly mortgage payment for a typical homebuyer to surge 45% year over year to $2,459 in June and priced many buyers out of the market.

The cooldown comes after the housing market soared to new heights during the pandemic, largely fueled by record-low mortgage rates and remote work.

"The housing market has changed drastically in the last month because higher rates make homes even more expensive than they used to be. At the same time, fewer people can afford pricey homes because of the volatile stock market," San Francisco Redfin agent Joanna Rose said in a statement.

"In the early spring, every home was selling over its asking price with multiple bids. Then the number of people attending open houses dropped from 20 to two, and now some homes are sitting on the market for over a month and selling for under asking price. Supply is starting to pile up," Rose added.

Housing Markets Cooling Fastest
• San Jose, CA
• Sacramento, CA
• Oakland, CA
• Seattle, WA
• Stockton, CA
• Boise, ID
• Denver, CO
• San Diego, CA
• Tacoma, WA
• San Francisco, CA

On the other hand, the 10 metros cooling the slowest are almost all located in the Northeast or the Midwest. Eight of them have a median sale price below the national level of $431,000.

Housing Markets Cooling Slowest
• Albany, NY
• El Paso, TX
• Bridgeport, CT
• Lake County, IL
• Rochester, NY
• New Brunswick, NJ
• Cincinnati, OH
• Akron, OH
• New Haven, CT
• Virginia Beach, VA

"There is good news for some buyers," said Rose. "People who can afford to buy right now could get something for $100,000 or $200,000 less than a few months ago, largely because homes are often no longer selling above asking price. They'll have a higher monthly payment for now due to the rise in mortgage rates but can refinance later if rates come down."

No market is heating up, Redfin added.

The housing market has been a key focus for the Federal Reserve, which has been raising interest rates in the hope of slowing down inflation.

LISTEN on the Audacy App
Sign Up and Follow Audacy
Facebook | Twitter | Instagram

Featured Image Photo Credit: Getty Images