U.S. Home Prices in February Register First Annual Decline Since 2012

February Sees First Yearly Decline in U.S. Home Prices Since 2012

In February 2023, the median U.S. home price experienced a notable 1.2% decrease compared to the same period last year, marking the first annual decline in home prices since 2012, as reported by national property broker Redfin.

The cooling trend in home prices has been attributed to the impact of high mortgage rates, which have dampened homebuyer demand and compelled sellers to readjust their expectations.

According to Andrew Vallejo, a Redfin real estate agent based in Austin, TX, one of the areas witnessing significant price declines, buyers are grappling with the increased cost of homeownership due to rising interest rates.

Meanwhile, sellers are facing the reality that their homes are not fetching the same prices as they did a year ago. Vallejo noted that while declining prices are enticing more potential buyers into the market, they are adopting a cautious approach, given the prevailing high interest rates and their advantageous bargaining position.

The data also reveals a shift in the dynamics of the housing market, particularly in March, following the collapse of Silicon Valley Bank. The ensuing turmoil in the banking sector has tempered expectations of aggressive interest rate hikes by the Federal Reserve for the remainder of the year.

Consequently, mortgage rates have witnessed a decline, prompting a resurgence in homebuyer activity. As of Thursday morning, the average 30-year-fixed mortgage rate stands at 6.54%, down from nearly 7% recorded at the end of February. This reversal follows a notable spike in rates by almost a full percentage point during the month of February.

Home Sales and Competition Stabilize After Months of Decline

In February, the housing market showed signs of stabilizing following a prolonged period of decline that persisted through the latter half of the previous year. Pending home sales, which have remained relatively stagnant since November, experienced a modest uptick of 0.3% compared to the previous month on a seasonally-adjusted basis.

While this marked a 26% decline from the same period last year, it represented an improvement from the record 35.5% annual drop observed in the preceding fall months.

Similarly, closed home sales exhibited a positive trend, registering a noteworthy 1.8% month-over-month increase in February, the most significant rise seen in over a year on a seasonally-adjusted basis.

Although closed sales were down by 22.5% year over year, this figure indicated an improvement from the staggering 35.1% annual decline recorded at the beginning of 2023. The surge in closed sales is attributed to the increased activity in the housing market during December and January, stimulated by the temporary decline in mortgage rates during those months.

In addition to home sales, homebuyer competition also demonstrated a stabilizing trend in February. Approximately 45.2% of home offers presented by Redfin agents encountered bidding wars, a percentage that has remained relatively consistent over the past four months.

This stabilization follows a nine-month period of continuous decline in bidding-war rates. However, it is noteworthy that the current bidding-war rate is substantially lower than the 66.4% observed in February 2022, indicating a significant reduction in competition compared to the previous year.

Home Listings Decline to Historic Lows Amid Seller Uncertainty

In February, the housing market witnessed a significant downturn in new listings, reaching the lowest level recorded since the onset of the pandemic. New listings plummeted by 23.3% year over year on a seasonally-adjusted basis and experienced a further 3.5% decline compared to the previous month.

The reluctance of homeowners to list their properties for sale has been a key factor driving this decline. Many homeowners have opted to hold off on selling due to the disparity between their current mortgage rates, which are significantly lower than prevailing rates.

Additionally, the prevalent trend of sellers in their local communities reducing listing prices has contributed to homeowner indecision. Notably, in February, approximately one in seven (14.2%) homes listed for sale underwent price cuts. Although this rate has decreased from its peak of 22% in the fall, it remains more than double the 5.7% rate observed a year earlier.

Metro-Level Insights: February 2023

Pending Sales: Baton Rouge, LA, witnessed the most significant decline in pending sales, plummeting by 69.1% year over year, followed by Allentown, PA (-54.4%), Honolulu (-53.8%), Greensboro, NC (-49.3%), and Las Vegas (-47.9%). Conversely, pending sales experienced growth in only four metros: Dallas (3%), Buffalo, NY (2.9%), Indianapolis (2.3%), and Cincinnati (1.3%).

Closed Sales: Miami observed the steepest decline in closed sales, dropping by 44.2% year over year, trailed by New York (-39.8%), San Jose (-38%), Baton Rouge (-37.7%), and Nassau County-Suffolk County, NY (-37.2%). In contrast, closed sales decreased the least in Dallas (-1.3%), Richmond, VA (-7.7%), Fort Worth, TX (-9.6%), Cleveland (-10.1%), and Dayton, OH (-12.8%).

Prices: Median sale prices decreased from the previous year in 31 metros, with San Jose (-13.1%), Austin (-12.4%), Oakland, CA (-11.3%), Sacramento, CA (-8.2%), and Oxnard, CA (-7.3%) leading the declines. Conversely, the most substantial increases were observed in Omaha, NE (11.8%), Knoxville, TN (11.5%), West Palm Beach, FL (11.4%), Columbus, OH (10.8%), and Milwaukee (10.4%).

Listings: Allentown experienced the most substantial decline in new listings from the previous year (-53.2%), followed by Greensboro (-45.8%), San Jose (-44.2%), Oakland (-43.6%), and Sacramento (-42.7%). New listings increased in only two metros: McAllen, TX (10.1%) and North Port, FL (1.6%), while remaining unchanged in Buffalo. Fort Worth (-2.9%) and Nashville (-3.2%) recorded the smallest declines.

Supply: Active listings surged the most in North Port (103.1%), Austin (78.6%), Nashville (71.7%), Fort Worth (69%), and Tampa, FL (62.5%). Conversely, they declined the most in Allentown (-34.4%), Cincinnati (-31.8%), Greensboro (-28.7%), Milwaukee (-26.9%), and Hartford, CT (-22%).

Competition: Colorado Springs, CO, witnessed the most substantial decline in competition, with a decrease of 52.6 percentage points year over year. Las Vegas (-44.6 ppts), Charlotte, NC (-42.6 ppts), San Antonio (-41.8 ppts), and Raleigh, NC (-37.3 ppts) followed suit. However, competition increased in Providence, RI (2.8 ppts).

San Jose (-1.4 ppts), Baltimore (-1.7 ppts), Philadelphia (-7.6 ppts), and Orlando, FL (-8 ppts) experienced the smallest declines

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