The housing correction is a tale of two markets

Some cities have been hit harder than others

(Photo Illustration by The Real Deal with Getty Images)

The housing correction throughout the U.S. hasn’t affected markets equally, with some seeing home prices fall precipitously, and others that have hardly been affected, Forbes reported, citing data from John Burns Real Estate Consulting.

Overall, prices dipped just 2.5 percent between June and November 2022, which, on its face, wouldn’t appear to be a major concern considering the 41 percent spike during the pandemic, the outlet reported.

However, the correction varied significantly by region, with 100 out of 150 markets ending 2022 with lower home prices compared to their 2022 peak, while 50 markets, including Miami and Milwaukee, remained at all-time highs. Of the down markets, 24 ended the year with home prices down at least 5 percent from their peak prices in 2022, according to the data cited by the outlet.

The majority of the markets with sharp price drops — such as Seattle and Santa Cruz — were on the West Coast, due to strained affordability and a higher share of homes owned by iBuyers and homebuilders, who were more likely to cut prices when sales cooled off. Some down markets, such as Austin, Las Vegas and Phoenix, were given the moniker Zoomtowns — pandemic boomtowns that were prone to the correction because of their outpaced fundamentals (including local incomes).

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The best illustration of how the correction has played out, Forbes reported, is Chicago and San Francisco, both of which had large numbers of people moving out due to remote work during the pandemic. But both also saw big spikes in home prices as demand increased during the lockdowns.

But Chicago has only seen a small decrease (0.1 percent) in housing prices as mortgage rates increased over 5 percent, while San Francisco’s home prices were down over 10 percent.

The reason, according to the report, is that San Francisco had reached its affordability limit, while homebuyers in Chicago still had room to breathe to handle the increase in mortgage rates.

The future of the residential market remains unclear, with mortgage rates serving as the wild card. Chances are, however, If rates remain at their current levels or are raised, then home prices nationwide will fall accordingly.

— Ted Glanzer