Washington, D.C. (CNN) House prices are rising across the country – in total. However, looking at individual markets, some show that prices are down from a year ago.
Median home prices for single-family homes rose 4% in the fourth quarter from a year ago to $378,700. Prices were strongest in the Northeast in the last quarter, up 5.3%; followed by the South, up 4.9%; the Midwest, up 4% and the West, up 2.6%, according to the National Association of Realtors.
But drill down to the market level and it is clear that prices in some areas are falling from the previous year. The positive regional data obscures that about 11% of individual housing markets tracked by NAR – 20 of 186 cities – saw house prices fall in the fourth quarter of last year.
“Double-digit price declines may be seen in a few markets, especially in some of the more expensive parts of the country, which have also experienced weaker employment and more residents moving to other areas,” said Lawrence Yun, NAR 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. Several of those places are seeing prices drop the most.
San Jose, California was the most expensive place in the United States to buy a home in the fourth quarter. But that median price of $1,577,500 is actually 5.8% lower than a year ago — and prices there are already down 17% from the peak price of $1,900,000 in the second quarter of last year, according to NAR .
San Francisco had the largest price decline in the country, year over year, last quarter, with the median price of $1,230,000 — down 6.1% from a year ago. Prices for homes in San Francisco are already down 21% in the fourth quarter from the peak average price of $1,550,000 in the second quarter.
Among the most expensive cities to see prices fall include Anaheim, California, with a median price of $1,132,000, down 1.6% from a year ago; 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 have seen big price increases during the frenzied housing market in recent years. They are also often attractive lifestyle destinations that people moved to as remote working 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 buyers seeking price reduction is that the average price increase of 4% in the fourth quarter is less than the 8.6% increase in the third quarter. In addition, the price is rising are smaller, with far fewer markets posting double-digit price gains in the fourth quarter.
“A slowdown in house prices is underway and welcomed, especially as typical house prices have risen 42% over the past three years,” said Yun, noting that these cost increases have far outpaced wage increases and consumer price inflation since 2019. have surpassed.
A broken market
For much of the pandemic, home prices across the country moved in one direction: up. Some hot spots like Austin and Boise saw prices skyrocket. In other areas, particularly the Midwest, prices rose more moderately. But with mortgage rates near historic lows, buyers flocked out.
That story changed last year, when mortgage rates spiked as a result of the Federal Reserve’s historic campaign to contain inflation. Homebuying fell off a cliff. By the end of 2022, existing home sales were nearly 18% lower than in 2021 as potential homebuyers exited the market, according to NAR.
Typically, a drop in demand to buy would mean oversupply and eventually lead to falling prices. But that is generally not the case in the housing market.
Instead, prices for single-family homes rose in nearly 90% of metropolitan areas tracked by NAR in the fourth quarter: 166 of 186 markets saw prices still rising. The national median price of a single-family home rose 4% last quarter from a year ago to $378,700.
How is this possible?
A major cause of this phenomenon is that there is a shortage of inventory due to chronic under-construction of affordable homes in the United States, along with homeowners who do not want to part with the ultra-low mortgage rates they have obtained in recent 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,” Yun said.
There are still places where house prices continue to rise at double-digit rates. The top 10 cities with the largest year-over-year price increases all posted gains of at least 14.5%, 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 is affordability changing?
In the last quarter of 2022, a family needed a qualifying income of at least $100,000 to afford a 10% mortgage in 71 markets, up from 59 in the prior quarter, according to NAR.
Still, there were 16 markets where a family needed an income of less than $50,000 to afford a house, though that was down from the 17 in the prior quarter. Some of these included Peoria, Illinois, where a family can qualify for a loan with an income of $33,660; Waterloo, Iowa, with income of $40,639; and Montgomery, Alabama, with an income of $48,172.
Nationally, the monthly mortgage payment on a typical existing single-family home with a 20% down payment was $1,969 in the fourth quarter according to NAR. That’s a 7% increase from last year’s third quarter, when the monthly payment was $1,838, but a big 58% increase — or a monthly increase of $720 — from a year ago.
This made the affordability picture even more difficult for many homebuyers. Households typically spent 26.2% of their income on mortgage payments, up from 25% in the previous quarter and 17.5% a year ago.
New buyers were apparently pushed to an affordability breaking point. They typically spent 39.5% of their household income on mortgage payments, compared to 37.8% in the previous quarter. A mortgage is considered unaffordable if the monthly payment, including principal and interest, exceeds 25% of the household income. In general, a general financial rule of thumb is to spend no more than 30% of your income on housing costs.