Seattle, San Jose, Austin and Phoenix are among the metros with the fastest-slowing housing markets as high mortgage rates, tech turmoil and the lack of homes for sale deter buyers. Connecticut, upstate New York and parts of the Midwest are holding up best.
Housing markets in tech hubs and pandemic migration hotspots are cooling more rapidly than other parts of the U.S. as the tech sector falters and mortgage rates remain elevated.
Austin, TX cooled fastest over the last year as the U.S. housing market descended from its pandemic-era boom. The Fed started hiking interest rates to combat inflation–leading to an increase in mortgage rates–one year ago. Austin is followed by Seattle, Phoenix, Tacoma, WA and Denver. Las Vegas, Stockton, CA, San Jose, CA, Sacramento, CA and Oakland, CA round out the top 10.
That’s according to a Redfin analysis that ranks the 100 most populous U.S. metropolitan areas for which full data is available, based on how quickly measures of homebuying demand and competition cooled from February 2022 to February 2023, according to year-over-year changes in home prices, price drops, supply, pending sales, sale-to-list price ratio and the share of homes that sell within two weeks.
It’s worth noting that while these markets cooled quickly from February 2022 to February 2023, some agents are now noticing competition on fairly priced homes as mortgage rates decline from their peak and supply remains low.
“I’m seeing bidding wars on homes that are priced fairly and accurately, and the overall market looks strong this week,” said San Jose Redfin agent Laxmi Penupothula. “Overpriced listings are the ones sitting on the market.”
Measures of homebuying demand and competition are dropping off quickly in tech centers including Seattle, San Jose, Tacoma (located about 30 miles south of Seattle) and Oakland.
The typical San Jose home sold for just 0.6% above its asking price in February, compared with 12% above asking price a year earlier–the biggest percentage-point dropoff in the U.S. Seattle had the third-biggest dropoff, going from 8% above asking price to 1% below during the last year. Pending home sales declined 40% year over year in Seattle, and they were down 38% in San Jose.
We talked to Redfin agents to examine how big a role the surge in tech layoffs, the shaky stock market and banking turmoil are playing in the cooldown, and found that coastal hubs are cooling quickly for a combination of reasons. Some reported that layoffs and precarious tech stocks are deterring buyers. Others attribute the slowdown mainly to other factors, including super-low inventory; San Jose and Oakland are among the five U.S. metros where new listings are dropping off fastest.
Housing markets in tech hubs are cooling quickly for several reasons:
The collapse of Silicon Valley Bank, which lent money to a lot of Bay Area startups, is having a mixed impact on the local housing market (the bank collapsed in March, after the timeframe of the data in this report). Redfin agents report that uncertainty around the stability of the banking and tech industries is exacerbating nerves in some buyers and sellers. But the bank’s failure–along with turmoil surrounding other banks–caused the Fed to raise interest rates only modestly this week, which has already brought mortgage rates down and could help bring some buyers back.
The New York metro (ranked #66 in terms of markets cooling fastest) is also likely to feel the impact of banking turmoil because so many of its residents work in the financial sector. Nearly one in five U.S. finance jobs are located in New York and finance is the highest-paying industry in the city. Banking instability could dampen homebuying demand in the area as finance workers worry about their industry.
Austin soared in popularity in 2021 and early 2022 as an influx of out-of-town remote workers moved in from expensive coastal areas, taking advantage of historically low mortgage rates. The Texas capital was the most popular migration destination in the country in early 2021.
But now, measures of homebuying competition and demand in Austin are dropping off fast. Its total supply of for-sale homes rose 140% year over year in February, the second-biggest increase in the U.S. (only North Port, FL, had a bigger increase). Pending sales dropped 40%, and just 16% of homes went under contract within two weeks of hitting the market in February, down from 38% a year earlier.
Austin is a victim of its own popularity. The surge of affluent homebuyers pushed up local home prices, and the subsequent rise in mortgage rates priced out even more local residents. Even though Austin’s median price per square foot fell 13% year over year in February, the biggest drop of any major U.S. metro, it’s still higher than it was two years ago and the income needed to buy a home there remains far higher than what the typical local earns.
The story is similar in Phoenix, Las Vegas and Sacramento, also magnets for remote workers leaving expensive areas for more affordable homes and sunnier weather. Phoenix, Las Vegas and Sacramento are all mainstays on Redfin’s list of most popular migration destinations and quickly went from relatively affordable to not-so-affordable–at least for existing residents–during the pandemic.
Now housing markets in those boomtowns are doing an about-face as rates rise. Tech troubles are also contributing to dampened demand in these areas because many remote workers are struggling with layoffs and the prospect of them. The Bay Area and/or Seattle are among the top origins for homebuyers moving to Austin, Phoenix, Las Vegas and Sacramento.
The increasing portion of home sellers dropping their asking price illustrates just how much some of these markets have cooled. In Phoenix, 70% of for-sale homes had a price drop in February, compared with 21% a year earlier–the second-biggest uptick in the U.S. It’s followed closely by Denver, where 37% of homes had a price drop in February, compared with 13% a year earlier.
Las Vegas and Phoenix are also among the places that have seen the biggest upticks in sellers offering concessions to woo buyers over the last year.
Relatively affordable housing markets in Connecticut, upstate New York and the Midwest are holding up best as the overall market falters.
Hartford, CT is holding up best, according to the same analysis that ranks the 100 most populous U.S. metros in terms of housing-market metrics that analyze demand and competition. In Hartford, the housing market isn’t necessarily hot–pending sales dropped 16% year over year in February and new listings also dropped by double digits–but other metrics show that there’s still competition for homes. Among the homes that are selling, more are going under contract within two weeks than a year earlier and the median price per square foot is up 8%.
Next comes Milwaukee, followed by two other Connecticut metros and two upstate New York metros: New Haven, Bridgeport, Albany and Rochester. Lake County, IL, McAllen, TX, Wilmington, DE and Chicago round out the top 10.
Homes in all those places are relatively affordable; nine of the 10 have a median sale price below the national median (Bridgeport is the exception). That means the uptick in mortgage rates doesn’t make as big of a dollar difference in monthly housing payments as it does in expensive areas.
Additionally, the surge of tech layoffs and tech-stock jitters don’t impact those places much because their residents likely work in other industries. Insurance is the biggest industry in Connecticut, for instance, and hospitals are the top employer in Albany.
The rankings in this report are from a Redfin analysis of the U.S. metros with housing markets that cooled down fastest from February 2022 to February 2023. The ranking is based on year-over-year changes in prices, price drops, supply, pending sales, sale-to-list ratio and the share of homes that went off market in two weeks during that period. The analysis compares February 2023 to February 2022 because in many U.S. metros, that’s when the housing market reached its pandemic-era peak in terms of demand and competition while the number of homes for sale was at a low. To be included in this report, a metro must have been among the 100 most populous in the U.S. and had data available for all six variables included in the analysis.
