After two years of record-breaking growth, the housing market is finally turning around — especially on the West Coast.
San Jose, California, is the market that’s cooling off the quickest, according to a new analysis from real estate brokerage Redfin. All of the top 10 markets in Redfin's list are along the West Coast or in western mountain states, including six entries in California.
To compile its ranking, Redfin analyzed the 100 largest metropolitan areas in the United States and looked at several measures of demand and competition for housing — including median sale prices, changes in inventory and price drops — between February and May of 2022.
Buying a home has increasingly become unaffordable almost everywhere, so what makes these cities stand out? Well, the supply of homes in San Jose has dropped while the pace of home sales has decreased, signaling a serious slowdown in the city’s real estate market. Meanwhile, the median sale price of a home in San Jose hit an eye-watering $1.56 million — up 18% from a year ago, according to Redfin.
Here are the 10 housing markets that are cooling off the fastest, according to Redfin.
- San Jose, California
- Sacramento, California
- Oakland, California
- Seattle, Washington
- Stockton, California
- Boise, Idaho
- Denver, Colorado
- San Diego, California
- Tacoma, Washington
- San Francisco, California
Seattle and Boise are also among the top five markets where home prices are likely to fall, according to CoreLogic.
Why is the housing market cooling off?
Redfin’s experts attribute the ongoing slowdown in these markets (and many others across the country) to soaring mortgage rates, which began steadily climbing when the Federal Reserve raised interest rates earlier this year. The average rate on a 30-year fixed-rate mortgage is 5.3%, according to data from Freddie Mac. That’s down from a few weeks ago but significantly higher than at the end of last year.
“Higher rates make homes even more expensive than they used to be,” San Francisco Redfin agent Joanna Rose said in a blog post.
The typical mortgage payment on a home priced at $450,000 with a mortgage rate of 6% is now $2,600, according to Redfin. That’s $700 more than when rates were 3%. Add those extra borrowing expenses to a 20% spike in home prices over the past year and you have a recipe for sky-high costs.
Rose also said it's become more difficult for people to afford homes because of the stock market, which entered a bear market last month, and inflation, which is running above 8%. Not to mention the looming threat of a recession.
Experts believe that home prices will eventually fall once enough buyers are sitting on the sidelines, but that process will be slow. Even though housing inventory is now rising, there still aren’t enough properties on the market to overcome a persistent shortage.
“Inventory levels still need to rise substantially – almost doubling – to cool home price appreciation and provide more options for home buyers,” Lawrence Yun, Chief Economist at the National Association of Realtors, said in a news release last month.