Costs for single-family houses in San Francisco, San Jose have fallen

SAN FRANCISCO — Real estate prices are rising across the country — overall. However, looking at individual markets, some Bay Area neighborhoods show that prices are down compared to a year ago.

Average single-family home prices rose 4% year over year to $378,700 in the fourth quarter. Prices were strongest in the Northeast last quarter, up 5.3%; followed by the south with a plus of 4.9%; the Midwest by 4% and the West by 2.6%, according to the National Association of Realtors.

But if you look at the market level, it’s clear that prices in some areas are down from last year. The upbeat regional numbers obscure that about 11% of the individual housing markets tracked by NAR — 20 out of 186 cities — saw home prices fall in the fourth quarter of last year.

“Some markets could see double-digit price declines, particularly some of the more expensive parts of the country, which have also seen weaker employment and more frequent outflows of residents to other areas,” said Lawrence Yun, NAR’s chief economist.

Almost all of the most expensive places to shop are in the West, and half of the top 10 most expensive cities are in California. Several of these places are where prices fall the most.

San Jose was the most expensive place to buy a home in the United States 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 saw the country’s largest year-over-year price drop last quarter, with an average price drop of $1,230,000 — down 6.1% year over year. San Francisco home prices are already down 21% in the fourth quarter from a peak of $1,550,000 in the second quarter.

Among the most expensive cities where prices fell were Anaheim, with an average price of $1,132,000, down 1.6% from a year ago; Los Angeles, with an average price of $829,100, fell 1.3%; and Boulder, Colorado, with an average price of $759,500, down 2.0%.

Other places with falling prices have seen the big price increases during the past few years’ hectic home buying market. They’re also typically attractive lifestyle destinations for people to relocate to, as remote work offers more flexibility. These include Boise, Idaho, where prices are down 3.4% year over year, and Austin, Texas, where prices are down 1.3%.

The good news for buyers looking for price relief is that the 4% average price increase in the fourth quarter is smaller than the 8.6% increase in the third quarter. In addition, the price increases are smaller, with far fewer markets posting double-digit gains in the fourth quarter.

“A slowdown in home prices is underway and is being welcomed, especially as the typical home price has risen 42% over the past three years,” Yun said, noting that these cost increases have far outpaced wage increases and consumer price inflation since 2019.

A fragmented market

For much of the pandemic, home prices across the country moved in one direction: up. Some hotspots like Austin and Boise saw prices soar. In other areas — particularly the Midwest — prices rose more moderately. However, with mortgage rates hovering near historic lows, buyers flocked.

That story changed last year when mortgage rates soared in the wake of the Federal Reserve’s historic campaign to curb inflation. Buying a house fell off a cliff. By the end of 2022, existing home sales were down nearly 18% from 2021 as prospective homebuyers exited the market, according to NAR.

Typically, a drop in buying demand would mean oversupply and ultimately lead to falling prices. But that, by and large, is not happening in the housing market.

Instead, single-family home prices rose in nearly 90% of the metro areas tracked by NAR in the fourth quarter: 166 out of 186 markets still recorded rising prices. The national median price for a single-family home rose 4% year over year to $378,700 last quarter.

How can that be?

A major reason for this phenomenon is that due to the chronic underbuild of affordable homes in the United States, there is a shortage of inventory, along with homeowners reluctant to part with the extremely low mortgage rates they have secured for the last several years have .

“Even with a projected 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 property 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%, according to NAR, with seven of those markets being in Florida and the Carolinas.

Farmington, New Mexico, saw the largest price increase in the fourth quarter, up 20.3% year over year. It was followed by Sarasota, Florida, up 19.5%; Naples, Florida, up 17.2%; Greensboro, NC, up 17.0%; Myrtle Beach, SC, up 16.2%; Oshkosh, Wisconsin, up 16.0%; Winston-Salem, North Carolina, up 15.7%; El Paso, Texas, up 15.2%; Punta Gorda, Fla., up 15.2%; and Daytona Beach, Fla., by 14.5%.

How is affordability changing?

In the last quarter of 2022, a family was required to have a qualifying income of at least $100,000 to afford a 10% down payment mortgage in 71 markets, up from 59 in the previous quarter, according to NAR.

Still, there were 16 markets in which a family required a qualifying income of less than $50,000 to purchase a home, although this was down from 17 in the previous quarter. Some were Peoria, Illinois, where a family earning $33,660 may qualify for a loan; Waterloo, Iowa, with an income of $40,639; and Montgomery, Alabama, with income of $48,172.

According to NAR, the monthly mortgage payment for a typical existing single-family home with a 20% down payment was $1,969 nationwide in the fourth quarter. 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 — year over year.

This made the affordability picture even more difficult for many homebuyers. Families typically spent 26.2% of their income on mortgage payments, up from 25% in the previous quarter and 17.5% a year ago.

First-time buyers have obviously been pushed to a breaking point of affordability. They typically spent 39.5% of their family income on mortgage payments, up from 37.8% in the previous quarter. A mortgage is considered unpayable when the monthly installment, including principal and interest, is more than 25% of family income. In general, a common financial rule of thumb is that you shouldn’t spend more than 30% of your income on housing.

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