Overheated housing hotspots on the West Coast are cooling down more rapidly than any others in the country as higher mortgage rates drive a nationwide price correction, according to an analysis conducted by real estate firm Redfin.
Of the 100 most populous US metro areas, Seattle’s housing market cooled the most from February through August of this year – a period in which mortgage rates surged. Las Vegas ranked second on the list of steepest slowdowns, followed by San Jose, Calif.
Nine of the top 10 cities with the dubious distinction were located in the western half of the country, including four within California. North Port, Fla., was the only East Coast market near the top of the list.
“These are all places where homebuyers are feeling the sting of rising home prices, higher mortgage rates and inflation very sharply. They’re slowing down partly because so many people have been priced out and partly because last year’s record-low rates made them unsustainably hot,” said Redfin Chief Economist Daryl Fairweather.
“The good news is that the slowdown is dampening competition and giving those who can still afford to buy more negotiating power,” he added.
Redfin based its rankings on calculations related to the year-over-year changes in home prices, price declines, housing inventory levels, pending home sales, sale-to-list ratios and the share of homes that went off the market within two weeks, the firm said.
Mortgage rates have skyrocketed since January as the Federal Reserve moves forward with interest rate hikes that make it more expensive to borrow money. A 30-year fixed-rate mortgage was 6.29% as of this week, up by more than 3.40% compared to one year ago.
The median home price in Seattle is a whopping $775,000 – meaning the typical monthly mortgage payment is $4,400. That’s more than $1,000 per month more than went rates were closer to 3% at the start of the year.
“A lot of sellers aren’t able to get the price they want because buyers don’t want to compete with other offers when mortgage rates are double what they were a year ago,” said Seattle Redfin agent David Palmer. “That means there are fewer sellers listing their homes and fewer buyers making offers on the ones that do hit the market.”
The firm noted that many cities on the list, including Las Vegas, Phoenix, Sacramento and North Port – were “relocation hotspots” during pandemic-era shift toward remote work. As monetary policy tightens and more companies return to the office, those markets are cooling fast.
Additionally, cities with large populations of tech workers are seeing less demand because worker compensation is often tied to stocks – nearly all of which are down considerably in recent months.
A growing number of analysts are warning of a housing correction. This week, Pantheon economist Ian Shepherdson said home prices could fall by 20% by the middle of next year as the market resets.
Read More: These US housing markets are slowing more than anywhere else