Home Prices Post Their Steepest Drop in Nine Years — and Buyers Are Finally Responding

The asking price on American homes has decreased in the eighth consecutive month and the fall in June was the greatest so far. In June, the national median list price fell by 2.5% annually, according to the latest Monthly Housing Trends Report released by Realtor.com, the largest yearly decrease in the metric that the company has tracked since it started tracking the metric in 2017.

The fact that prices are going down is not just peculiar to this moment. It is that buyers are not leaving the market, but heading towards the market.

• The pending home sales rose 3.7 percentage annually, the seventh straight month of increases and homes are not lingering longer on the market than they have been a year ago.

• The falling prices and increasing demand are not two sides of the same coin in this case, but half of the same coin as explained by Realtor.com chief economist Danielle Hale, who views the trend as sellers getting the room right and not the market being in pain.

Why It Matters: A Recalibration, Not a Crash

The difference between a self correcting market and a breaking down market is not merely a matter of numbers but behavior. During a real recession, sellers will inflate prices due to habit, and then will have to be forced to repeat discounts as offers do not come through.

Instead what Realtor.com is talking about is the reality-based pricing by the sellers at the very start of the process, a transition that senior economist Jake Krimmel has termed price discovery occurring pre-listing, rather than post-listing.

The regional disaggregation indicates how skewed this rebalancing has been:

• The West and South were down 4 percent and 2.5 percent

• The Northeast region recording a relatively tame 1 percent drop

• The Midwest flat.

Back the lens to June 2022 when national list prices were at an all-time high of $449,000, and the difference becomes even more pronounced: the West is falling by over 7 percent and the South by almost 3.5 percent since that time, with the Midwest increasing by 10 percent and the Northeast increasing by almost 13 percent.

During that four-year period, prices have fallen in 28 of the 50 largest metros, and have increased in 22, a sign that the housing market is dividing geographically but not moving as a whole.

That deviation is important to one who attempts to time a purchase or sale. A buyer in Phoenix or Austin is operating in a market that is fundamentally different than the one in Providence or Cleveland and national averages are obscuring more than it is illuminating.

To builders, the trend also gives reason as to why new construction has become concentrated in more price-sensitive Sun Belt metros such as Houston, Dallas, San Antonio, Phoenix where entry-level buyers can still afford to stretch, even as luxury condo development remains concentrated in high-cost centers such as New York or Miami.

What Happens Next: Watching the Cancellation Signal

Affordability hasn’t been solved. Mortgage rates are high and about seven out of ten current homeowners are still in rates of less than 5 a difference that is substantial enough to deter numerous potential sellers to list their properties even as the prices are dropping. It is that lock-in effect which makes the Northeast and Midwest supply gains so significant – they indicate that some homeowners are now willing to pay with a low rate a move.

Contract cancellations are the metric worth keeping an eye on in the remainder of the summer.

Any increase at that would be an indication that economic pressure is beginning to creep in and overtake the recent stability of the market instead of merely re-setting expectations. To-date, cancellation rates have remained lower than the previous-years levels, which the economists are interpreting as the first indication ever in this slowdown that it is a landing, not a stall.

To buyers who have been years of their lives priced out completely, the present window can be seen as the most bargaining power they have had since prior to the pandemic-era boom, even though the road to complete affordability may still go through multiple additional quarters of patience.