Detached house prices are falling in these cities

House prices are rising throughout the country - cumulatively. However, looking at individual markets, some show prices down from a year ago.
Median detached house prices rose 4% in the fourth quarter compared to last year to $378,700. Prices were strongest in the Northeast last quarter, up 5.3%; followed by the South, an increase of 4.9%; The Midwest, up 4% and the West, up 2.6%, according to the National Association of Realtors.
But it is necessary to delve into the market level and it is clear that the prices in some areas are decreasing from the previous year. The positive regional numbers mask that about 11% of the individual housing markets that NAR tracks—20 out of 186 cities—experienced declines in housing prices in the fourth quarter of last year.
"Some markets may see double-digit price declines, particularly in some of the more expensive parts of the country, which have also seen weaker employment and higher cases of residents moving to other areas," said Lawrence Yoon, NAR's chief economist.
Almost all of the most expensive places to buy are in the West and half of the 10 most expensive cities are in California. Some of these places are seeing prices drop the most.
San Jose, California, was the most expensive place to buy a home in the United States in the fourth quarter. But that median price of $1,577,500 is actually down 5.8% from last year — and prices there are already down 17% from the record median price of $1,900,000 in the second quarter of last year, according to NAR.
San Francisco had the largest price drop in the country, year-over-year, last quarter, with a median price of $1,230,000 - a 6.1% decrease over last year. Home prices in San Francisco have already dropped 21% in the fourth quarter from the median price to a record high of $1,550,000 in the second quarter.
Among the most expensive cities that saw price declines were Anaheim, California, with a median price of $1,132,000, down 1.6% from last year; Los Angeles, with a median price of $829,100, down 1.3%; and Boulder, Colorado, with a median price of $759,500, down 2.0%.
Other places with falling prices saw the biggest price increases during the crazy home buying market of the last few years. They also tend to be attractive lifestyle destinations that people have moved to because telecommuting has provided more flexibility. These include Boise, Idaho, where prices fell 3.4% from a year ago and Austin, Texas, where prices fell 1.3%.
The good news for shoppers looking for price relief is that the median price increase of 4% in the fourth quarter is lower than the 8.6% increase in the third quarter. In addition, price increases are smaller, with far fewer markets experiencing double-digit price increases in the fourth quarter.
"A slowdown in housing prices is underway and welcome, especially since the typical housing price has increased 42% in the past three years," said Yoon, noting that these cost increases have far outpaced wage increases and consumer price inflation since 2019.

Broken market

Throughout most of the pandemic, housing prices across the country moved in one direction: up. Some hot spots like Austin and Boise have seen prices skyrocket. In other regions - especially in the Midwest - prices rose more moderately. However, with mortgage rates near historic lows, buyers left in droves.
That story changed last year, when mortgage rates rose as a result of the Federal Reserve's historic campaign to curb inflation. Housing purchase fell off a cliff. By the end of 2022, existing home sales were down nearly 18% from 2021, as homebuyers left the market, according to NAR.
Generally, a decrease in buying demand means an excess supply and will eventually lead to a decrease in prices. But this does not happen, in general, in the housing market.
Instead, prices for single-family homes climbed in nearly 90% of the metro areas tracked by NAR in the fourth quarter: 166 of 186 markets saw prices still rising. The national median price of a detached house increased by 4% in the last quarter from a year ago to $378,700.
How can it be?
One of the main drivers of this phenomenon is that there is a shortage of inventory due to a chronic underconstruction of affordable homes in the United States, along with homeowners who do not want to part with the extremely low mortgage rate they secured over the past few years.
"Even with an expected decline in home sales this year, prices are expected to remain stable in the vast majority of markets due to extremely limited supply," Yoon said.
There are still places where housing prices continue to climb at double-digit rates. The top 10 cities with the largest year-over-year price increases all posted increases of at least 14.5 percent, with seven of those markets in Florida and the Carolinas, according to NAR.
Farmington, New Mexico, saw the largest price increase in the fourth quarter, up 20.3% from a year ago. It was followed by Sarasota, Florida, up 19.5%; Naples, Florida, up 17.2%; Greensboro, North Carolina, up 17.0%; Myrtle Beach, South Carolina, up 16.2%; Oshkosh, Wisconsin, up 16.0%; Winston-Salem, North Carolina, up 15.7%; El Paso, Texas, up 15.2%; Punta Gorda, Florida, up 15.2%; and Daytona Beach, Florida, up 14.5%.

How does price affordability change?

In the last quarter of 2022 a family needed a qualifying income of at least $100,000 to afford a 10% down payment mortgage in 71 markets, up from 59 in the previous quarter, according to NAR.
However, there were 16 markets where a family needed a qualifying income of less than $50,000 to afford a home, though that was down from 17 in the previous quarter. Some of these included Peoria, Illinois, where a family could qualify for a loan with an income of $33,660; Waterloo, Iowa, with an income of $40,639; and Montgomery, Alabama, with an income of $48,172.
Nationally, the monthly mortgage payment on a typical existing home with a 20% down payment was $1,969 in the fourth quarter according to NAR. This is a 7% increase from the third quarter of last year, when the monthly payment was $1,838, but a significant increase of 58% – or a monthly increase of $720 – from a year ago.
This has made the affordability picture even more difficult for many homebuyers. Families typically spent 26.2% of their income on mortgage payments, up from 25% in the previous quarter and 17.5% a year ago.
First-time buyers have apparently been pushed to the breaking point on affordability. They typically spent 39.5% of their family income on mortgage payments, up from 37.8% in the previous quarter. The mortgage is considered unaffordable if the monthly payment, including principal and interest, reaches more than 25% of the family's income. As a general rule, a common financial rule of thumb is to spend no more than 30% of your income on housing costs.