Exclusive: Has the pandemic housing market come to an end? Rising inventory, price drops show shift

·5 min read

After two years of a super-heated, fast-moving pandemic housing market that saw home prices increase by over 20% year-over-year, can potential homebuyers finally expect a semblance of normalcy in the coming months?

“The unusual market conditions of the pandemic have come to an end,” Lawrence Yun, the chief economist for the National Association of Realtors told USA TODAY. “The sellers just need to understand that whatever last year's price was, they cannot just boost up prices by another 20%. They would not find buyers using that philosophy.”

However, that does not mean home prices are coming down anytime soon. Sellers are lowering listing prices from all-time highs, but they are not likely to return to pre-pandemic prices.

What is changing is the frenzied pace of transactions and the prevalence of bidding wars.

At $407, 600, the median existing-home sales price exceeded $400,000 for the first in May, marking a 15% increase from one year ago. The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, reported a 20.4% annual gain in April, down from 20.6% in the previous month.

But there are signs that the market is transitioning.

In data Redfin shared exclusively with USA TODAY, sellers on average, dropped their price by 4.7% nationally last week In more than 80% of the metros tracked by Redfin, the price drops were in the 4 to 6% range.

Are home sales declining?

Contract signings have declined from a year ago due to sharp mortgage rate hikes, says Nadia Evangelou, NAR senior economist and director of forecasting.

Total existing-home sales, which includes completed transactions for single-family homes, townhomes, condominiums and co-ops, fell by 9% year-over-year in May.

Pending home sales, a future-looking indicator of home sales based on contract signings, dropped 14% in May, according to NAR’s Pending Homes Sales Index.

Nationally, the inventory of homes actively for sale on a typical day in June increased by 19% over the past year, the largest increase in inventory in the data history, according to a report by Realtor.com.

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Federal Reserve rate increases to control inflation are beginning to influence the housing market, including eroding affordability, says Evangelou.

For instance, in January a person buying a median single-family home priced at $360,700 with 10% down could have obtained a 30-year fixed mortgage at 3.2%. Now the median home would cost $414, 200 with a 30-year-fixed mortgage rate of 5.7%.

That would mean the monthly mortgage payment has increased by about $800 since the beginning of the year, says Evangelou.

Is housing inventory rising?

Nationally, the inventory of homes actively for sale on a typical day in June increased by 19% over the past year, the largest increase in inventory in the data history, according to a report by Realtor.com.

That translated to 98,000 more homes actively for sale on a typical day in June compared to the previous year.

Chad Snow, a real estate agent from Salt Lake City, Utah, says he’s seen a strong rise in inventory over the last eight weeks.

There were 6,367 active listings this May compared to 5,031 last May.

“There was a lot of uncertainty last year and a lot of people just stayed home and improved their home, and now people are looking to move up,” he says.

Are home prices dropping?

While exuberant listing prices are being lowered after months on the market, home prices will continue to rise moderately due to a lack of supply, say experts.

Price drops are becoming common in mid-sized metros in the West, many of which became pandemic hotspots and saw experienced meteoric price growth.

Nearly half (48%) of homes for sale in Provo, Utah and Tacoma, Washington, had a price drop in May, according to a Redfin analysis.

In Salt Lake City, Utah, which saw a 56% appreciation in home prices in two years, from $356,000 in May 2020 to $556,000 in 2022, for instance, 46% of the homes listed this year reduced their asking price, says Snow.

“When the interest rates got up over 5%, the buyers kind of stopped,” he says. “I feel like a number of those price drops were sellers and agents that thought the market was still hot or hotter than it than it is.”

The other metro areas making the top ten places to see the largest share of homes dropping their prices include Denver (47%), Salt Lake City (46%) and Sacramento (44.3%).

At 7%, San Francisco metro area home listing prices experienced one of largest drops, just behind Detroit (7.6%). Both New York and San Jose metro areas saw listing price drops of 6% last week. Homeowners in Boise City, Idaho; Phoenix, Arizona; Denver, Colorado; Tucson, Arizona; and San Antonio, Texas, lowered their listing prices by 4%, according to Redfin data exclusively reviewed by USA TODAY.

Boise and Ogden in Utah and Portland, Oregon all saw more than 40% of the homes reducing their prices. Four of the 10 metros with the highest share of price drops – Provo, Salt Lake City, Boise and Ogden–are among the 10 places where prices increased most during the pandemic.

Yun had a word of caution for potential sellers.

“It is important for sellers to be realistic about what the original list price should be,” he says. “They don't want to constantly lower the list price, because if that happens, the consumers will think that something is wrong with the house.”

Swapna Venugopal Ramaswamy is a housing and economy correspondent for USA TODAY. You can follow her on Twitter @SwapnaVenugopal and sign up for our Daily Money newsletter here.

This article originally appeared on USA TODAY: The pandemic housing market has ended. These metros saw price drops.