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Para Yahoo Finance – As the US housing market returns to sanity, researchers say these 5 cities are primed for deep price cuts

As the US housing market returns to sanity, researchers say these 5 cities are primed for deep price cuts

If you’ve been squeezed out of the tight housing market over the past couple of years waiting for the opportunity to buy, you might finally get your chance – and some places are already looking more attractive for buyers.

For Para Yahoo Finance, the housing market is beginning to cool and cities that have seen an “influx of affluence,” as Rick Palacios, Jr. calls it, may see prices drop the farthest.

Palacios is the director of research at John Burns Real Estate Consulting, which delivers analysis on the housing market to clients such as builders, realtors and investors.

He’s predicting a significant downturn in the housing market in Boise, Austin, Nashville, Phoenix, Sacramento and other cities where prices climbed during the COVID-19 pandemic as more people moved to them.

“These are some of the markets where we were anticipating the steepest price declines in 2023,” says Palacios

Investors are pumping the breaks

Home values in Phoenix went up 25% over the past year, according to Zillow’s value index.

“As of the first quarter of this year… investor transactions are 45% of the entire housing market,” says Palacios.

That includes people buying second homes, investment properties and houses to flip.

“That’s a big deal,” says Palacios. “And there’s a lot of markets across the country where investor transactions are now 30-40-45% of all home purchases.”

Markets that depend on investment activities do well on the upside, says Palacios, but they can turn quickly.

“That’s why we’ve got some pretty negative forecasts, especially on a relative basis to more kind of slow, steady markets.”

According to Redfin, investor purchases in Nashville were down nearly 17% in the first quarter of 2022, 17% in Las Vegas, and 21% in Sacramento.

Inventory on the rise

From February 2020, before the housing market went haywire, to this summer, housing prices in Boise went up 58%, says Palacios. In Austin, they’re up 75% and in Nashville, it’s up 56%.

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“We look at affordability as probably one of the most, if not the most, important indicator for how sustainable things are in a market,” says Palacios.

And as interest rates began to rise — the national rate on a 30-year mortgage is now 5.66%, according to Freddie Mac — it became clear how unsustainable those prices had become.

“The monthly payment is up 40-50% year over year,” says Palacios. “And that’s a huge shock to that buyer, which tells you why these markets have pulled back so fast.”

Companies are also starting to bring people back to the office, which has played some part in more people putting their homes up for sale and a growth in inventory.

Housing inventory is up 26% nationally year over year, according to Realtor.com.

Ratiu says inventory is growing in Austin, Raleigh, Nashville, Sacramento and others – again, cities that saw a surge in population over the past two years.

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