Opendoor continued to feel the market’s headwinds in the second quarter of 2023, which led to fewer homes sold and lower revenues in the period. But the iBuyer greatly reduced its operating costs, delivered a profit, and increased its home purchases in the quarter.
The iBuyer recorded a net income of $23 million from April to June, compared to a net loss of $101 million in the previous quarter and a net loss of $54 million in the same quarter last year, per Securities and Exchange Commission (SEC) filings.
The firm’s revenues came in at $2 billion in the second quarter of 2023, down 37% compared to the previous quarter and 53% related to 2Q 2022. Total operating expenses declined to $217 million, compared to $294 million in Q1 2023 and $454 million in Q2 2022.
Carrie Wheeler, CEO of Opendoor, said the company exceeded the high end of its guidance for adjusted Ebitda and revenues in the second quarter as it continues to “focus on what we can control and operate with discipline in this environment.”
In April, the iBuyer announced that it had made the “very difficult decision” to lay off roughly 22% of its workforce, or 560 positions. More layoffs followed in November 2022, when Opendoor cut 550 jobs, or approximately 18% of its workforce at the time.
“Our results reflect the progress we’ve made in strengthening our offering, driving cost efficiencies and managing risk. We expect the third quarter to mark our return to positive contribution margin levels,” Wheeler said in a statement.
Opendoor has committed to deliver at least 100 basis points of contribution margin improvement by 2024, increasing the annual target range to 5% to 7%, with a goal of eventually returning to positive adjusted net income. The contribution margin was negative 4.6% in Q2 2023.
“We expect to perform within our 5% to 7% contribution margin target beginning Q4 2023,” Opendoor’s interim CFO Christy Schwartz told analysts Thursday. “We are managing our business to return to positive adjusted net income, which is our best proxy for operating cash flow. And we believe we have the cost structure and balance sheet in place to do so.”
Schwartz said the company expects to reach breakeven at steady annual revenues of $10 billion, or approximately 2,200 home acquisitions and resales per month at its target contribution margin range of 5% to 7%.
But what about selling and buying homes?
In the second quarter of 2023, Opendoor sold 5,383 homes, a decline of 35% compared to 1Q 2023 and 49% compared to 2Q 2022.
“As of quarter end, 99% of the homes we made offers on between March and June of last year were sold or under resale contract and our new book of inventory is generating positive unit economics in what continues to be an uncertain time in the U.S. housing market,” Wheeler said.
Meanwhile, Opendoor’s inventory balance reached $1.1 billion in the quarter, representing 3,558 homes. The total is down 46% from the previous quarter and 83% from the same period last year.
The company purchased 2,680 homes from April to June, up 53% from Q1 2023 and down 81% from Q2 2022. The decline versus the prior year comes primarily from elevated spreads embedded in its offers since June last year, coupled with sellers remaining on the sidelines, Opendoor’s executives told analysts.
Opendoor ended the quarter with 1,390 homes under contract for purchase, up 22% versus Q1 2023.
Looking forward, the company expects to deliver revenues between $950 million and $1 billion in Q3 2023 when adjusted Ebitda is expected to be between negative $60 million and $70 million.
The firm is optimistic about the opportunities it has cultivated, including its partnership with Zillow and its Opendoor Exclusives platform.
Zillow Group Inc. shares slid after the company’s revenue forecast missed estimates, with an anemic U.S. housing market weighing on expected results.
The company, whose core business is helping real estate agents connect with homebuyers, said it’s projecting third-quarter revenue of $458 million to $486 million. That compares with an average analyst estimate of $488 million in data compiled by Bloomberg.
The shares fell as much as 7.6% in late trading. They were down 2.1% to $51.91 at 4:46 p.m. New York time.
The disappointing forecast came on a day in which the company reported second-quarter earnings that beat analyst estimates.
Zillow’s “residential” business segment generated $380 million in revenue in the quarter, down just 3% from the same period of 2022, when the housing market was still blazing. That compares with a 22% decline in industry transaction volumes, according to the statement.
The company’s websites and apps remained popular despite slower home sales, attracting 226 million unique users on the average month in the second quarter. Zillow said investments to its sales funnel have helped it do a better job connecting homebuyers to real estate agents.
“Zillow outperformed the broader industry for the fourth consecutive quarter as we navigate a tough real estate market,” Chief Executive Officer Rich Barton said in the statement. “I’m pleased with our steady progress on improving and integrating our customer and partner experiences, especially in touring, financing and renting.”
The U.S. housing market is on fire. Prices are rising at a record pace, and it’s getting harder and harder to find a good deal on a home. Even the ever-increasing cost of home lending isn’t doing much to drive prices downward, despite the US Federal Reserve’s best efforts to curb inflation by raising the base rate! If you’re looking for a luxury home, there are still a few markets where you can find some good deals. Here are five of the strongest luxury housing markets in the U.S. right now.
St. Louis, Missouri
St. Louis is a city that has been on the upswing in recent years. The economy is strong, unemployment is low, and there’s a lot of new development happening. This has all led to a surge in demand for luxury homes in St. Louis. The median home price in St. Louis is currently around $250,000. This is significantly lower than the national average of $375,000. So if you’re looking for a luxury home in a more affordable market, St. Louis is a great option.
While the Midwest region might not be for everyone, St. Louis has a lot to offer luxury buyers in terms of amenities. The city is home to a world-class art museum, a symphony orchestra, and a number of professional sports teams. St. Louis is also located within a short drive of some of the most beautiful natural scenery in the country.
Boulder, Colorado
Boulder is a city that is known for its stunning scenery, its vibrant arts and culture scene, and its strong economy. The city is also home to a number of Fortune 500 companies, which has helped to drive up demand for luxury homes in recent years.
The median home price in Boulder is currently around $900,000. This is significantly higher than the national average, but it is still relatively affordable for luxury buyers. Boulder is a popular destination for tech workers and entrepreneurs, and the city’s economy is expected to continue to grow in the coming years.
San Jose, California
San Jose is the heart of Silicon Valley, and it is one of the most expensive cities in the country. The median home price in San Jose is currently around $1.5 million. However, the city’s strong economy and its abundance of amenities make it a desirable place to live for luxury buyers.
San Jose is home to a number of Fortune 500 companies, and the city’s unemployment rate is consistently below the national average. The city also has a thriving arts and culture scene, and it is home to some of the best restaurants in the country. Plus, its close proximity to San Francisco means it’s close to even more incredible culture and arts.
Dallas, Texas
Dallas is a major financial and business center, and it is home to a number of Fortune 500 companies – much like many of the other entries on this list. Similar to San Jose, for example, the city’s economy is likewise quite strong, and the unemployment rate is consistently below the national average. In fact, the entire Dallas-Fort Worth area has been a solid economic performer for decades.
The median home price in Dallas is currently around $500,000. This is significantly lower than the median home price in San Jose or Boulder, but it is still a relatively high price tag. However, Dallas offers a number of amenities that appeal to luxury buyers. The city has a vibrant arts and culture scene, and it is home to some of the best restaurants in Texas.
Hilton Head, South Carolina
Hilton Head is a resort town located on the Atlantic coast of South Carolina. The city is known for its beautiful beaches, its golf courses, and its upscale shopping. It has a very strong and well-earned reputation for luxury living thanks to its position on the coast and the warm weather it experiences nearly year-round.
The median home price in Hilton Head is currently around $1 million. This is a relatively high price tag, but it is still affordable for luxury buyers. The city’s strong economy and its abundance of amenities make it a desirable place to live for those who want to enjoy a luxurious lifestyle. It’s especially relevant for anyone who enjoys boating or watersports of every kind.
These are just a few of the strongest luxury housing markets in the U.S. right now. If you are looking for a place to buy a luxury home, these are the cities where you should start your search.
Bonus Markets You Should Consider for Luxury Housing
St. Louis, Boulder, San Jose, Texas, and Hilton Head are fantastic choices if you’re looking for a solid luxury housing market. In addition to the five cities listed above, there are a few other markets that are worth considering if you’re looking for a luxury home. These include:
Austin, Texas
Nashville, Tennessee
Raleigh, North Carolina
Charlotte, North Carolina
Phoenix, Arizona
These markets are all experiencing strong growth, and they offer a good mix of affordability and amenities. So if you’re not sure where to start your search for a luxury home, these are a few great places to consider.
The Last Word on Luxury Home Markets in 2023
If you are in the market for a luxury home this year, you can’t go wrong with any of the excellent cities and neighborhoods mentioned in this list. However, you should be aware that markets change all the time based on economic conditions. Be sure to do your due diligence and thoroughly research every property you’re interested in. Enlist the help of a qualified real estate professional familiar with your target market for the best results!
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Homeowner Marie Cantu, 35, lives just outside of Seattle, and has been looking to buy a single-family home outside of Boston to be closer to her family.
The mom-of-five has been “seriously looking” for three-bedroom homes for the last six months. Cantu is hoping to rent her home in Washington, and move roughly before the school year starts, so that her children can adjust better to the new neighborhood. Cantu, a stay-at-home mother, homeschools her children.
Higher rates make housing more expensive — and less affordable — for aspiring homeowners. They have also been a major factor in keeping would-be home sellers out of the housing market.
On Wednesday, the U.S. Federal Reserve raised the benchmark rate by 25 basis points in line with most Wall Street economists’ expectations, making it the 11th rate hike among the last 12 Fed meetings. The benchmark rate has now reached a 22-year high of 5.25%-5.5%.
Cantu is fortunate in that she isn’t in a position where she has to sell her home. Her home, which she bought for $700,000, is fully paid off.
She is looking to buy with cash and a partial mortgage at the prevailing mortgage rate. She said that her “ideal” rate would be 3% to 4%, but acknowledges that those rates were historic lows seen during the pandemic. But Cantu said she has accepted higher rates as the new normal, given that the 30-year mortgage interest rate is now hovering just over 7%, more than double what it was two years ago.
But the house search recently hit a major speed bump. Cantu told MarketWatch that she put an offer in a couple of weeks ago on a home — the only time she got close to buying a home she really wanted — she was outbid. “It was listed at $699,000,” Cantu said, and she offered $715,000. “And someone outbid us,” she said.
Cantu’s brush with the hot post-pandemic housing market — where inventory has been so low that home buyers are once again competing with each other to buy homes — reveals how mortgage rates have pushed the U.S. housing sector into a fundamental supply-and-demand problem.
Demand continues to remain steady as home buyers adjust to the new normal of higher rates. But housing inventory is at a record low, with under a million single-family homes listed for sale on the market.
The lack of homes is due to the fact that the vast majority of homeowners currently have a 30-year mortgage — well below today’s rate of 7%. They have little reason to sell, as doing so may require them to purchase another home with a much higher mortgage rate.
“‘I don’t think people should expect mortgage rates to go back to the 3% range. We have short-term memories when it comes to where rates were before COVID.’”
— Melissa Cohn, regional vice president at William Raveis Mortgage.
The 30-year was averaging at 7.04% as of Wednesday morning, according to Mortgage News Daily. Mortgage purchase applications, which gives insight into how many people bought a home with a mortgage, fell 2.5%, according to the Mortgage Bankers Association.
According to the Atlanta Fed, high rates and home prices across the nation have pushed the cost of homeownership up sharply since the same period last year. For a family earning a median annual income of around $76,000, purchasing a median-priced home of $357,000, they would have to spend 41% of their income on housing, the Fed calculated.
Experts advise home buyers to forget what they saw during the pandemic when it came to rates. “I don’t think people should expect mortgage rates to go back to the 3% range,” Melissa Cohn, regional vice president at William Raveis Mortgage, told MarketWatch. “We have short-term memories when it comes to where rates were before COVID.”
For those who are keen to sell their home or buy three years after a pandemic pushed rates to record-low levels, they should temper their expectations. “We’re not going to see mortgage rates back down to 3% ever in our lifetimes — it’s simply not in the cards,” Lisa Sturtevant, chief economist at Bright MLS, told MarketWatch. “Unless something catastrophic happened again.”
The good news: rates are expected to fall over the next few years, just not to the most recent low of 2.71% in December 2020. In its July housing forecast, Fannie Mae said it expects the 30-year to go below 6% at the end of 2024. While many homeowners and homebuyers may feel discouraged by that forecast, experts said people will likely acclimatize to a higher interest-rate environment, as people’s circumstances change and selling becomes more imperative.
What’s a ‘normal’ mortgage rate for home buyers?
Just how low do rates need to go to push people to get back to the property market?
Americans will have to adjust their expectations, Cohn said. “A buyer will say to you that the rate has to be 3% — but that’s not the reality,” she added. “We have to take the rate during the pandemic out of the equation in order to go back to a healthy real-estate market.”
A healthy real-estate market would look much like the U.S. housing market between 2015 and 2019, she added, when rates were between 3% and 5%. “That was at a point when rates were low enough that people were like, ‘It’s a good deal. I can afford this,’” Cohn explained.
A more realistic range for the 30-year fixed rate that could be helpful for home buyers would be between 4.75% to 5.25%, Matthew Ricci, a Rhode Island-based home-loan specialist at Churchill Mortgage, told MarketWatch. Within this range, “you will start to see an increase in inventory,” he added.
Recent research suggests that the 30-year falling to a “magic” rate of 5.5% would be enough to push more home buyers to purchase homes, according to John Burns Real Estate Consulting in April.
The company surveyed over 1,300 homeowners and renters, and found that 71% of prospective buyers who plan to buy their next home with a mortgage said they are not willing to accept a rate of over 5.5%. In fact, 62% said that they believe a “historically normal mortgage rate” is less than 5.5%.
What mortgage rate will encourage homeowners to sell — and buy again?
On the flip side, what will it take for homeowners — who are not going to buy another house with all-cash — to sell their homes and for the number of new listings to increase?
Sturtevant said that a fixed rate below 6.5% for the 30-year could tempt homeowners to start selling, particularly if they are leveraging the significant rise in house prices over the last three years and using equity in their home to reduce the size of their next mortgage.
Many homeowners who sell may be able to tap the proceeds from the sale of their current home to pay for a new one. A first-time buyer, on the other hand, will have to borrow a six-figure mortgage at 7%.
So as rates approach 6%, “I think we’re going to start to see new listing activity begin to increase here in the second half of the year,” she added.
Sturtevant noted that homes — like Cantu’s home in the Seattle metro area — have appreciated considerably in value over the last few years. Homeowners can, therefore, use that equity if they choose to sell.
“‘Nobody’s going to be thrilled about trading in their super low mortgage rate for something above 6%, but their home buying and selling is about more than just finances.’”
— Lisa Sturtevant, chief economist, Bright MLS
What’s more, finances and interest rates are just part of the equation. “Nobody’s going to be thrilled about trading in their super low mortgage rate for something above 6%, but their home buying and selling is about more than just finances,” Sturtevant said.
“There are a lot of families and individuals out there living in homes right now that just aren’t right for their families,” she added. Empty nesters, for example, are more likely to be focused on retirement, and may want to downsize to a smaller property with a small mortgage or, indeed, no mortgage at all. In that case, selling up might make sense.
Others, like Cantu, are renting their current home and buying another, Cohn said. Some “have very low rates, so they can make a very good margin on rental income,” she added.
Ricci said the majority of his clients are either first-time home buyers, people relocating for work, or landlords who are cashing out. “Most people aren’t going to sell unless they have a need to sell,” he said. “Or they’re in a situation where they have multiple properties.”
Cantu, the homeowner from Washington, bought her current home with her husband — who passed away in 2021 — for $700,000. She said that real-estate brokerages estimate that her house is now worth close to $1.2 million. But she still isn’t keen on selling.
“I don’t want to just cash out to a developer for $1.2 million. I would love to just rent my house for a reasonable price to a family who needs it,” Cantu said. What kind of tenant would she like to get? “Someone who is just priced out of here because it’s gone crazy the last four years,” she said.
But being outbid on her first offer forced Cantu to reckon with the tough housing market. “It was a little crushing because I realized I’m probably gonna have to get a place that needs some work,” she said.
“It was discouraging,” Cantu said, ‘but I’m going to keep looking.”
Following a short breather with a pause last month and after 10 consecutive rate hikes, the Federal Reserve instated its eleventh increase since March 2022. The decision was announced after its two-day Federal Open Market Committee (FOMC) meeting.
Fed officials, in a unanimous — and much expected — July 26 decision raised interest rates by 25 basis points, taking the benchmark borrowing costs to their highest level in more than 22 years, as CNBC reported.
“Inflation remains elevated,” the Fed declared in a statement. “The Committee will continue to assess additional information and its implications for monetary policy.”
This new hike will have several consequences for consumers, many of whom have been facing financial pressure on several fronts.
One such consequence is a likely effect on mortgage rates, as questions arise as to what this new development means for homebuyers.
Home Prices Are Rising, Purchasing Power Is Declining
The combined impact of higher rates and higher home prices has driven the cost of financing the typical listed home up more than $250 (or 12.4%) from a year ago. Further, the cost of financing that home is up more than $1,100 from June 2020, nearly doubling the cost in three years, per Realtor.com chief economist Danielle Hale.
Hale said that higher mortgage rates cut into homebuyer purchasing power and have been an important brake on existing home sales, falling from a more than 6.5 million unit pace in early 2022 to the 4.2 million unit pace in recent months.
“Perhaps more importantly, higher mortgage rates change the trade-up calculation for existing homeowners and are keeping as many as one in seven out of the market because they don’t want to give up their existing low rate,” said Hale.
“As a result, I expect the number of homes for sale to decline this year, and continue to be a damper on home sales. Limited inventory is also keeping prices high even though housing affordability has deteriorated significantly in the past three years.”
Soaring Mortgage Rates Lock Would-be Sellers in, Triggering Increased Short Supply
Mortgage rates are double from where they stood a couple years ago. As of July 26, the current average 30-year fixed mortgage interest rate is 7.12%, according to The Mortgage Reports’ daily rate survey.
As Ted Rossman, senior industry analyst at Creditcards.com, said, at the end of 2021, that figure was just 3.27%. Further, during this rate-hiking cycle, mortgage rates have eclipsed 7% a few times, something we hadn’t seen since 2002 — akin to a 33% rise in home prices.
“And speaking of home prices, they have remained stubbornly high in large part because of low inventory. A lot of people aren’t moving because of the ‘golden handcuffs’ of a 3% or 4% mortgage rate they secured a few years ago,” said Rossman.
Rossman added that mortgage rates probably need to go below 5%, if not even lower, to stimulate a meaningful change. He noted, however, that there is also an element of “be careful what you wish for,” since a rapid drop in mortgage rates would probably only be caused by an economic downturn.
“The housing market will likely need to adjust to a ‘new normal’ of rates in the 6-7% range for a while, gradually coming down to 5-6%,” he concluded.
This analysis comes amid an already difficult market for homebuyers. Earlier this month, a Redfin report found that just 1% of the nation’s homes have changed hands this year — translating into prospective homebuyers having 28% fewer homes to choose from than they did before the pandemic upended the U.S. housing market.
When Will the Real Estate Market Turbulence Change Course?
Dottie Herman, vice chair and former CEO of Douglas Elliman, echoed the above sentiments. She said homeowners are not going to move and pay the current mortgage rate, which is around 7%, when they locked in at a much lower rate during the pandemic. Yet, Herman believed there will be some movement in 2024 as rates come down and people start to buy again.
“Millennials in particular believe in home ownership and are just waiting for a more favorable time to buy. Since the pandemic existing home prices have gone up 40% but recent homebuilder confidence has boosted new construction 20% since last year,” said Herman.
All in all, the rise in mortgage interest rates will continue to put pressure on affordability for would-be homebuyers.
However, given the lack of housing inventory, many will either adjust their budgets, search for lower-priced homes or remain renters, said Haseeb Rahman, portfolio manager at Palisades.
“Some homebuyers will have to decide whether to buy their dream home today and absorb the higher interest rates in hope of refinancing if rates decline in the future (i.e., ‘marry the house and date the rate’) or wait out the current market environment for lower rates and, perhaps, higher prices,” added Rahman.
A Silver Lining?
According to Michele Raneri — vice president and head of U.S. research and consulting at TransUnion — while the mortgage market may continue to be slow, it remains to be seen whether cooling inflation may help motivate consumers who had been holding off due to increasing cost of living.
“This remains an unpredictable market when it comes to mortgages,” said Raneri.
“Mortgage rates are, in fact, high, but at the same time, we have continued to see an improvement in other metrics such as unemployment, which lends to optimism. Ultimately, even as mortgage rates remain higher than we have seen in recent history, consumers may well become impatient as they wait on buying their first, or their next, home, and may re-engage with the market sooner than later.”
There’s been a lot of speculation that home prices would crash as mortgage rates surged.
The argument was especially convincing after the 30-year fixed climbed from around 3% to over 7% in less than a year.
This was unprecedented movement, even if mortgage rates remain below those crazy double-digits from the 1980s.
Sure, they are still low historically, at around 6/7%, but the doubling in less than 12 months is what you need to pay attention to.
Going from 12% to 15% isn’t fun either, but it’s not as much of a payment shock percentage-wise.
Do Higher Mortgage Rates Mean Lower Housing Prices?
At first glance, you’d think that mortgage rates and home prices have an inverse relationship.
In that if one variable goes up, the other must come down. And vice versa. So if mortgage rates shoot higher, home prices must tumble lower.
But here we are, looking at new all-time highs for home prices while the 30-year fixed averages nearly 7%.
How is it possible that both home prices and mortgage rates rose in tandem?
Well, for one, history reveals that they aren’t negatively correlated. In other words, they can rise together, or fall at the same time.
As to why, remember how mortgage rates are determined. Much of their direction is based on the health of the economy.
At the moment, the economy is strong, if not too strong, which is why the Fed began tightening the screws and raising its own fed funds rate in the first place.
This was meant to cool off the overheated housing market, which was experiencing unprecedented demand.
And it seemed to work, pushing home price appreciation back to much more normal levels, instead of double-digit annual gains.
However, the Fed could really only fiddle around with the demand side of things. By that, I mean cool demand by making mortgage financing more expensive.
And they accomplished that goal. There’s a lot less demand out there, whether it’s driven by a lack of affordability or just less willingness to buy at this combination of prices/rates.
But the Fed can’t really do anything about the supply piece, which is the other key part of the equation.
They can attempt to rein in inflation with monetary policy, but they can’t build more homes.
Unfortunately, low inventory was an issue before the Fed got involved. So their attempt to tame the housing market might be in vain, at least partially.
This might also explain, why despite markedly higher mortgage rates, the typical U.S. home value surpassed $350,000 for the first time ever in June.
Per Zillow, national home prices increased 1.4% from May to June, their fourth monthly gain in a row.
That put the typical home at $350,213, nearly 1% above the price seen the previous June, and just enough to beat out the old Zillow Home Value Index (ZHVI) record set last July.
It’s All About the Inventory, or Lack Thereof
If we shift our attention away from mortgage rates, and instead focus on available inventory, the current state of the housing market begins to make a lot more sense.
When you realize there are virtually no homes for sale, it begins to explain why home prices are up in spite of near-7% mortgage rates.
The latest piece of data on the inventory front comes courtesy of Redfin, which reported that the turnover rate is the lowest it has been in at least a decade.
This is defined as the number of homes that are listed divided by the total number of sellable properties that exist in a given area.
It includes all residential properties, including single-family homes, condos/townhouses, and 2-4 unit properties.
Just 14 out of every 1,000 U.S. homes changed hands during the first half of 2023, compared to 19 of every 1,000 during the same period in 2019.
Looked at another way, prospective home buyers have 28% fewer homes to choose from versus four years ago.
And it was already slim pickings back then, before the pandemic upended the U.S. housing market.
California appears to be the hardest hit, with roughly six of every 1,000 homes in San Jose selling this year. Similar low turnover rates can be found in nearby Oakland, as well as down south in San Diego.
They add that the “pandemic homebuying boom depleted supply, and it hasn’t been replenished because homeowners are hanging onto their relatively low mortgage rates.”
This is known as the mortgage rate lock-in effect, or golden handcuffs to some.
Simply put, homeowners can’t (due to affordability) or are unwilling (due to the price disparity) to give up their current 2-3% mortgage rate.
As such, existing home supply is basically nonexistent. And the only supply in town is coming via the home builders, who incidentally are enjoying this odd dynamic at the moment.
Last week, the National Association of Realtors 2023 Member Profile revealed that a shortage of housing supply was the biggest impediment to their clients buying a home.
NAR also noted that housing inventory fell to the lowest level recorded since the year 1999.
Home Prices Defying Gravity Thanks to Low Supply
Zillow said there were 28% fewer new listings this June versus last June. We’ll find out soon if inventory gets even worse.
But they added it might be “the low water point for year-over-year comparisons in new listings” because inventory plunged last July.
So we might not see as many startling headlines regarding low supply since it’ll be hard to go much lower, at least relative to recent readings.
Regardless, it’s clear that a lack of supply, well below healthy levels of 4-5 months, is allowing home prices to defy gravity as interest rates remain elevated.
This differs tremendously from the boom years of the early 2000s, when there was an oversupply of homes (8-9 months), similar mortgage rates, and exotic financing to boot.
It also explains why home prices aren’t dropping, despite much higher mortgage rates and poor affordability.
And why many forecasts now have home prices gaining steam, with CoreLogic predicting an increase of 4.5% by May 2024.
In other words, don’t expect home prices to fall anytime soon because of high mortgage rates. Instead, watch inventory.
If inventory starts rising, you can begin to make the argument for falling home prices.
In several previous articles I have opined that an increase in mortgage rates may be our only hope for slowing the escalation of home prices that we’ve been experiencing for the past year. With mortgage rates hitting above 3% last week for the first time since June, it’s a good time to revisit this conversation and what we should expect next for mortgage rates.
Since the summer of 2020, I have argued that if mortgage rates could get over 3.75%, days on market would rise and the rate of price growth would cool. This will be bullish for housing because the price gains we have been seeing are extremely unhealthy.
A common theme in the interviews I have done in 2021 has been that this is the unhealthiest housing market since 2010 — not because we have a credit boom or a bubble forming, but because we have forced bidding on too few homes. We need the days on market to grow out of the teenager stage.
If the antidote to our housing market ills is higher mortgage rates, when can we expect getting this cure? The unfortunate answer is not anytime soon.
If you are familiar with my work, you are aware that I rely heavily on the movements of the 10-year yield to guide my mortgage rate predictions. Even though I have been extremely bullish on the U.S. economy, my bond market forecast for the 10-year yield in 2021 was that it wouldn’t go above 1.94%, with the lower end of the range being 0.62%. This translates into the upper range of mortgage rates to be 3.375%-3.625% at best, and lower end of the range to be 2.25% – 2.375%.
In my America Is Back recovery model that was published on April 7, 2020, I wrote that the goal for the 10-year yield would be to create a range between 1.33% – 1.60%. This is something that couldn’t have happened in 2020 but in 2021 should be the case.
Considering the strength of the economic recovery we have been having since April 2020, I would have been shocked and disappointed if the 10-year never got to 1.60%. Like clockwork, the 10-year yield did what I thought it should do. As much as I love Van Gogh and Monet, the chart below may be the best piece of art I’ve seen this year.
In 2021, we have had the fastest growth and hottest inflation data in recent history. This has led some to predict that mortgage rates would skyrocket. I am sympathetic to those who are shocked that the 10-year yield is at 1.48% in October, but the 10-year yield has been in a downtrend since 1981 and that needs to be respected.
Trust me, in recent years it hasn’t been easy trying to convince people that mortgage rates would have a 2 handle before a 6 handle. During November 2018, when the 10-year yield was at 3.24%, I was speaking at a conference and got scolded by another economist for talking about the 10-year yield falling in 2019 and the thought of a 1 handle on the 10-year yield. This isn’t surprising since The Wall Street Journal polled 50 economists that year and all said rates were going up. However, using the chart above, I made a prediction that we could see a 1 handle in the 10-year yield in 2019. This happened as well.
I was recently asked in a podcast interview why I always talk about 1.94% as a key level since 2019. When the inverted yield curve happened in 2019, this was something I had forecast at the end of 2017 for 2018. I truly believe we inverted the yield curve in 2018. However, after the accepted inversion happened, I talked about the 1.94% level on the 10-year yield being a key level in 2019 and even in the 2020 forecast article, I made sure to emphasize that again. (More on that topic and the entire AB economic recovery model in this podcast, where Wall Street has taken notice of my work here at HousingWire.)
Since the start of 2015, when I began incorporating bond yield forecast in my prediction articles, I have always stated that the 10-year yield should be in a range between 1.60%-3%. During COVID-19, I forecast recessionary yields of -0.21% – 0.62%. Given that the recession ended in April of 2020 and we have been in recovery mode ever since, we should see the range of 0.62% – 1.94%, which is what I forecast for the economic expansion period.
What can take bond yields higher than 1.94% and get mortgage rates to 4% and higher? And why is this important? The most important data line I want to see grow is the days on market, as it’s simply too low currently and creating too much price growth in housing.
One common thing I see is that people say when QE (quantitative easing) ends, the bond market bubble will end and bond yields and mortgage rates will rise and housing will collapse. Let me just make this is as simple as possible, by referencing the chart below:
QE1 ended, bond yields fell.
QE2 ended, bond yields fell.
Tapering started to go into the final stages in 2014 and bond yields fell.
QE3 was supposed to be the end of humanity when it finished. After the end of QE3, bond yields fell.
Just be careful of putting all your eggs in the “bond market is a bubble and rates have to skyrocket when QE ends” basket. It didn’t end well for those forecasting much higher mortgage rates and bond yields, as you can see below.
While bond yields are historically low, that long-term downtrend stayed intact even with the best economic growth and hottest inflation data in years. Can the bond market have an algo model bond selling fit? Yes, it can. However, nothing of note will happen as long as we are below 1.94% on the 10-year yield. I am just sticking to my guns here, the same way as in 2019, 2020, and 2021.
In 2021, when the mention of tapering started at some point, bond yields fell.
The most realistic scenario I have come up with to break that 1.94% level is that the world economies start to come together and move past this COVID-19 historical stage. This means Japan and Germany bond yields move up as well. It’s really hard for the U.S. to break away too much from Germany and Japan’s 10-year yield.
When the world economies are running in a more normal fashion, that could serve as a reasonable premise to get the 10-year yield above 1.94%. My next-level peak would be only 2.42%. However, that bridge has not only not been crossed, but it’s not close enough to be tested. So, until that happens, no 4% plus mortgage rates here in America.
As crazy as this sounds, 2021 looks remarkably normal with regard to the bond market and mortgage rates.
I am big believer in range-yield work — it’s been a staple of mine for many years and a big factor in writing my American recovery model back on April 7, 2020. Economic models keep us in line and we always look for things that can break it with live events daily. However, for now everything looks just right to me.
While I do understand that bond yields being this low with our economic growth and inflation data seems strange, just remember: respect the trend as it is your friend. Don’t betray it and you will be fine at the end.
On Oct. 5, I will be speaking at the virtual California Association Of Realtors REImagine Conference and Expo with other economists about the state of the U.S. housing market and what to look for in 2022. I will be attending the Mortgage Bankers Association Annual conference in San Diego Oct. 17-20 and hope to see many of you there.
Although the Macroeconomic Outlook Remains Uncertain, the Homeownership Rate Continues to Grow, Particularly Among Below-Median Income Families
The overall increase in the total homeownership rate can be attributed to the strong growth in the below-median family income homeownership rate, which has sharply increased since 2016 from 48.0% to 53.4%
The U.S. economy is stalling as higher interest rates weigh on interest rate-sensitive sectors like housing. But the U.S. consumer has been resilient, and the broader economy has weathered several adverse shocks over the past year and a half, avoiding a recession so far. While housing market activity has slowed, the favorable demographic tailwind from a large cohort of potential first-time homebuyers has bolstered the market and led to some surprising trends in homeownership.
Recent developments in the U.S. economy
The U.S. Bureau of Economic Analysis revised Gross Domestic Product (GDP) growth upward 0.2 percentage points to an annualized rate of 1.3 % in the first quarter of 2023. Though this is the third consecutive quarter of positive GDP growth, the pace is slowing due to a continued drag in residential fixed investment. With the second estimate of GDP also comes the first estimate of Gross Domestic Income (GDI), which decreased 2.3% in the first quarter of 2023.
In theory, GDP and GDI should be identical as they are both estimates of aggregate output. GDP measures expenditures while GDI measures income; as a rule, aggregate expenditures always equals income. However, research has shown that the GDI measure can be more predictive of future output growth than GDP, and the Philadelphia Federal Reserve Bank’s GDPplus combines both GDP and GDI to produce a composite estimate.1 GDPplus as of May 25, 2023, estimates output growth at -1.4% and -1.2% for Q4 2022 and Q1 2023 respectively. If the GDPplus measure is accurate, then the U.S. economy has begun to contract; however, because employment remains strong, this implies that productivity must be falling.
The negative correlation between productivity and monetary policy has been studied in many recent academic papers, see for example Jordà et al. (2020) and Meier et al. (2022).2 Falling productivity was associated with the monetary tightening of the high-inflation episodes in the 1970s and early 1980s in the U.S., and negative output per hour growth preceded each of the recessions of that period. Output per hour growth in the U.S. has been negative since the first quarter of 2022.
Despite the potential contraction in activity indicated by GDI, the labor market remains resilient.
Despite the potential contraction in activity indicated by GDI, the labor market remains resilient. The unemployment rate did increase in May by 0.3 percentage points to 3.7%; the largest month-over-month increase since the onset of the COVID-19 pandemic. However, an increase in job openings caused the ratio of job openings to unemployed persons to jump up to 1.79 in April 2023 from 1.67 the month before. Despite the rise in the unemployment rate reported in the household survey, the establishment survey reported that nonfarm payrolls increased by 339,000 in May. In addition, average hourly wages increased 0.3% over-the-month, and 4.3% year-over-year to $33.44/hr.
Inflation continues to slow from its peak in September 2022 but remained high in April at 4.7% year-over-year according to the U.S. Bureau of Economic Analysis’ “core” price index for personal consumption expenditures excluding food and energy. The annual growth rate in the price index for services less housing has continued to hover between 4.3% and 5.2% since April 2021 and currently sits at 4.8% year-over-year
Recent developments in the U.S. housing market
Per the National Association of Realtors, existing home sales receded 3.4% in April to a seasonally adjusted annual rate of 4.28 million, while a separate joint release from the U.S. Census Bureau and U.S. Department of Housing and Urban Development surprised on the upside and reported that new home sales increased 4.1% in April. Through the first four months of the year, existing home sales have averaged a 4.3 million seasonally adjusted annual rate, representing a 14% decline from last year’s 5 million sales. Meanwhile, new homes have averaged a seasonally adjusted annual rate of 655,000 sales, representing a 2% increase from last year. The simultaneous decline of existing home sales and increase of new home sales has shifted the composition of the home sales market toward new home sales. Excluding the temporary spike due to the onset of the COVID-19 pandemic, of new home sales as of April 2023 comprise the largest percentage of total home sales since 2008 (Exhibit 2).
There is 2.9 months’ supply of existing homes at the current sales rate, and existing homes remained on the market for only 22 days in April according to NAR. New homes, on the other hand, have 7.6 months’ supply, according to the U.S. Census Bureau. Overall, the total number of single-family homes available for sale remains low at 1.3 million units, only 8.1% above its all-time low in February 2022. Furthermore, as the number of existing homes available for sale has dwindled while available new homes are relatively higher, the share of active for-sale inventory of new homes has reached near 30% (Exhibit 3).
The divergence between the new and existing home sales markets is suggestive of a substantial rate lock-in effect: homeowners with lower rates on their mortgages have a lower propensity to list their homes for sale and move due to the elevated rates of today, which pushes prospective buyers into the new-home market. This dynamic is consistent with the trends highlighted in Exhibits 2 and 3.
Though sales and supply are lagging, there are signs that the housing market is starting to rebound. The NAHB reported that builder sentiment increased to an index value of 50 in May, indicating that building conditions are balanced even in the face of tight credit conditions. The increase in sentiment is primarily due to current sales conditions and 6-month sales expectations, which both increased into positive sentiment territory in May. Starts and permits for single-family homes increased by 1.6% and 3.1%, respectively, over the month of April on a seasonally adjusted basis, according to the U.S. Census Bureau.
House prices continue to firm up in the short run. Per the FHFA’s purchase-only house price index, house prices increased 0.6% from February to March 2023. However, the national figures do not represent all regions equally as there is substantial regional heterogeneity, with monthly house price changes ranging from +1.5% in the East North Central Division to -1.3% in the Mountain Division.
Recent developments in the U.S. mortgage market
After spending two months in a narrow range between 6.28% and 6.43% from mid-March through mid-May, mortgage rates measured by the U.S. weekly average 30-year fixed mortgage rate in our Primary Mortgage Market Survey® have resumed their ascent in recent weeks. In the week of June 1, rates reached 6.79%, the highest reading since November of last year.
According to our estimates shown in Exhibit 4, mortgage originations in the first quarter of 2023 were just $344 billion, the lowest quarterly total since the second quarter of 2014. Higher mortgage rates are dampening mortgage application activity. Purchase applications were down 6.9% during the last week of May, while refinance applications dropped 11% after seasonal adjustment. Due to seasonality in the housing market, mortgage originations will likely increase in the second quarter, but full-year 2023 originations will almost certainly be below 2022 levels.
With a strong labor market and house prices resuming modest increases, overall mortgage performance is strong, especially when compared to other types of credit. According to data from Transunion the share of loans 60 days or more past due fell 0.01 percentage points from Q1 2021 to Q1 2023 for mortgages, while it increased by 0.36 percentage points for autos, 0.80 percentage points for Bankcards and 1.1 percentage points for unsecured personal loans over the same period. Per Transunion, subprime auto delinquency rates for the Q2 2022 vintage over nine months are up 3.16 percentage points relative to the Q2 2019 vintage, while delinquency rates for prime borrowers are only up 0.97 percentage points over the same period.
Overall credit performance remains solid for higher credit quality borrowers, but that is in an economy with unemployment rates below 4%. If the labor market outlook darkens, mortgage performance could weaken, and rising delinquency rates spread to higher credit quality borrowers.
The outlook
The macroeconomic outlook, and thus also the future of the housing and mortgage markets, remains uncertain. Macroeconomic indicators like GDI and inflation point to a slowing economy that could tip into recession if hit with a significant adverse shock. However, our baseline view does not include a recession, rather only a slowdown in growth and a modest uptick in unemployment as the most likely scenario. In establishing this baseline view, risks are weighted to the downside.
Macroeconomic indicators point to a slowing economy that could tip into recession if hit with a significant adverse shock. However, our baseline view predicts only a slowdown in growth and a modest uptick in unemployment.
General economy, rates, inflation
The U.S. economy, which primarily hinges on consumer spending, will slow down once consumers’ buffer of savings are depleted. But its impact on the economy will be limited unless it is accompanied by a substantial negative economic shock. In the past year and a half, the
economy has weathered adverse shocks (war, banking failures) and avoided slipping into recession. Part of the reason for the resilience of the economy is the resilience of the U.S. consumers, who still have substantial savings to draw on and can bolster the economy despite a decline in employment.
Under our baseline scenario, the unemployment rate gradually moves modestly higher, enough to slow the economy but not trigger a full-blown recession. In that scenario, we expect inflation to cool but remain above the Federal Reserve’s target of 2% and mortgage rates to move mostly sideways, most likely remaining above 6% through year-end.
Home sales
Our housing outlook, particularly for home sales, remains muted due to the challenges presented by higher mortgage rates and a slowing economy. However, not all the trends in the housing market are unfavorable. Despite the substantial affordability challenges, first-time homebuyers continue to come to the market and have contributed to an increase in homeownership rates as discussed in our spotlight section below.
Home prices
While home prices have been positive in most markets, it is still too early to separate the signal from the noise fully, and employment is likely to weaken, so we maintain a cautious outlook for prices. Our official corporate forecast calls for house prices to fall 2.9% over twelve months through Q1 of next year and an additional 1.3% over the subsequent twelve months.
Mortgage originations
The refinance market will remain muted this year, given the expected path for mortgage rates. On the home purchase side, we expect mortgage originations to stay flat this year. Purchase originations will start to strengthen later this year as home sales stabilize, and they will resume modest growth in 2024.
JUNE 2023 SPOTLIGHT: HOMEOWNERSHIP RATES
The below-median income homeownership rate is surging
At Freddie Mac, we strive to make home possible, and as part of our mission, we develop research and analysis that helps identify relevant housing trends. June is National Homeownership Month and accordingly, this month’s special topic looks at homeownership rates broken out by income level and the surprising trend that has emerged in recent years.
The Census Bureau’s Housing Vacancy Survey unexpectedly shows that the below-median family income homeownership rate has
sharply increased from 48% to 53% since 2016.
The homeownership rate measures the proportion of total occupied housing units that are owner-occupied (versus renter-occupied). The Census Bureau’s Housing Vacancy Survey shows an unexpected trend in the homeownership rate for households with a family income less than the median family income. Exhibit 5 (following page) shows that the below-median family income homeownership rate has sharply increased since 2016 from 48.0% to 53.4% as of the first quarter of 2023.
Conversely, the homeownership rate for owner-occupied households with a family income higher than the median family income has grown at a much softer pace than the below-median family income homeownership rate. Exhibit 6a shows that since the second quarter of 2016, the below-median family income homeownership rate has increased 5.4 percentage points while the above-median family income homeownership rate has only increased 0.8 percentage points.
Furthermore, the overall increase in the total homeownership rate since 2016 has been driven mainly by the strong growth in the below-median family income homeownership rate. Exhibit 6b shows that since the second quarter of 2016, the growth in the below-median family income homeownership rate accounted for at least 70% of the cumulative growth in the overall homeownership rate in each subsequent quarter. As of the first quarter of 2023, 87% of the 3.1 percentage point increase in the overall homeownership rate since 2016 can be attributed to the growth in the below-median family income homeownership rate.
The homeownership rate gap between above-median and below-median family income households has shrunk over the last couple of years and has generally been trending down over the past decade as the growth in the below-median family income homeownership rate continues to outpace the abovemedian family income homeownership rate growth. Exhibit 7 shows the gap steadily decreasing since after the Great Financial Crisis and more so in recent years. As of the first quarter of 2023, the gap stands at 25.2%, the smallest gap since the start of the series.
The strong growth in the below-median family income homeownership rate may seem unexpected given the strong house price growth since the pandemic and more recently, the jump in borrowing costs. Nonetheless, below-median family income households are overcoming constraints and finding ways to become homeowners even within a less affordable environment – an encouraging sign as we continue to celebrate National Homeownership Month.
Footnotes
1 Aruoba, S.B., Diebold, F.X., Nalewaik, J., Schorfheide, F. and Song, D., 2016. Improving GDP measurement: A measurement-error perspective. Journal of Econometrics, 191(2), pp.384-397.
2 Jordà, Ò., Singh, S. R., & Taylor, A. M. (2020). The long-run effects of monetary policy (No. w26666). National Bureau of Economic Research., and Meier, M. and Reinelt, T., 2022. Monetary policy, markup dispersion, and aggregate TFP. Review of Economics and Statistics, pp.1-45.
With the news this month that the housing market hit a milestone by showing the first year-over-year price decline in recent memory, homeowners who’d considered finally selling their home this year are finding themselves discouraged yet again.
What happened, they might wonder, to the not-so-distant glory days of frantic bidding wars and over-ask offers? Plenty of frustrated owners seem worried that the window for a fast and lucrative home sale might be shutting fast.
But here’s the reality: The U.S. housing market is no monolith. Although it’s true that many of the hottest markets of the past few years have seen prices fall in the wake of higher mortgage interest rates that broadly dampened home shoppers’ buying power, there are still cities where buyers continue to snatch up homes quickly and where sellers are getting their full asking price—or more.
This is why the Realtor.com® data team dug in to find the U.S. real estate markets that most favor sellers. (Sorry, buyers!)
The best places for sellers generally have persistently low housing inventory, strong demand from buyers, and often—but not always—lower prices that have room to swell. These are generally affordable metropolitan areas in the Northeast with a few in the Midwest.
Three of the metros on our list—Hartford, CT, Worcester, MA, and Providence, RI—are so close, you could tour homes in all of them in a single day. Our ranking also has one spot in the South and a somewhat bizarre outlier in California—more on that later.
To figure out if an area is a buyer’s or seller’s market, Pamela Ermen likes to track the change in the number of closed sales per month, compared with the change in the number of new listings per month.
“When sales are going up and inventory is going down, that’s a real seller’s market,” says Ermen, a Virginia Beach–based Realtor® at Re/Max and a speaker and coach at Real Estate Guidance.
Still, sellers who focus solely on low inventory can wrongly conclude that they can list their home at a higher price than an agent might advise. That can lead to their property languishing on the market not receiving strong offers. Meanwhile, buyers who focus only on the number of sales going down might wrongly think there’s less competition. That might result in heartache when they find out the hard way that many homes are still getting multiple offers.
To find true seller-friendly places, the Realtor.com data team looked at the May 2023 listing data for the 100 largest metropolitan areas. Then we ranked each based on the number of days that the median listing is on the market, combined with the portion of listings that have had the price reduced. These metrics tell us where homes are selling faster than average and with fewer sellers having to reduce their price to make the sale.
We selected just one metro area per state to ensure geographical diversity. (Metros include the main city and surrounding towns, suburbs, and smaller urban areas.)
Here’s where sellers can expect the market to be most tilted in their favor this summer.
Median list price: $265,000 Median days on the market: 13 Listings with a price reduction: 1 in 17
Rochester, on the western edge of New York along the southern shore of Lake Ontario, not only is at the top of our seller’s saviors list—it’s also in a class of its own. Rochester had both the lowest number of days on the market and the lowest portion of listings with a price reduction. But this is nothing new for the so-called Flower City.
The metro area has become a mainstay of the Realtor.com hottest real estate markets list. It’s also where sellers are usually still getting their asking price, and where buyers can find one of the largest selections of homes for less than $200,000. Plus, home prices are well below the national median list price of $441,500 in May.
These affordable homes have made the area appealing to locals, out-of-towners, and investors.
“If you’re priced right in our market, you can expect to still sell in about one week,” says Jenna May, a local real estate agent at Keller Williams Realty.
When the market was at its pandemic peak in 2022, and even before anyone had heard of COVID-19, Rochester was still leading the nation in the low number of days on the market. Demand here for homes is high and seems destined to stay that way.
“There are people who are offering $80,000 over listing price and not getting the home,” says May. “It’s that competitive.”
Median list price: $424,925 Median days on the market: 19 Listings with a price reduction: 1 in 14
The capital city of Connecticut is also no stranger to the Realtor.com list of the nation’s hottest real estate markets. Hartford is the largest population hub in the state, with 1.2 million residents.
It also boasts home prices that are about 5% below the national median.
“The Northeast has been well undervalued compared with other markets—and not just for years, but for decades,” says Lisa Barrall-Matt, a senior broker at Berkshire Hathaway in West Hartford.
Homes in the Hartford area have been priced $100,000 less than comparable homes in other markets, Barrall-Matt says, for so long that she began to take it for granted.
Now, she’s feeling vindicated: “I used to say, ‘Why aren’t prices higher?’ Now I’m saying, ‘Where’s the ceiling?’”
Median list price: $622,500 Median days on the market: 24 Listings with a price reduction: 1 in 13
Portland became a popular pandemic destination for Northeasterners looking for a scenic, coastal city with some great restaurants, entertainment, and a brewery scene. The area has a rich history, having a Native American presence dating more than 10,000 years before becoming an early Colonial settlement.
The above-average prices in this artsy city on Casco Bay aren’t keeping sellers from enjoying quick sales. In fact, few listings are getting marked down. The demand for housing here is just so strong. Portland has been featured on our list of the best places to retire in 2022, and it has one of the last year’s hottest neighborhoods: Windham, just on the northwestern edge of Portland proper.
Prices in Portland have grown significantly faster during the pandemic—from May 2019 to now—than they did in most of the country. Where prices rose about 40% nationally, prices in Portland have grown by about 62%. Just since this time last year, prices rose 17%.
A newer four-bedroom home in South Portland that’s within walking distance of Fore River is listed for $650,000, close to the area average.
Median list price: $517,450 Median days on the market: 19 Listings with a price reduction: 1 in 10
Worcester, about 40 miles west of Boston, was nicknamed the “Heart of the Commonwealth” because of its central location in Massachusetts.
This medium-sized metro has a name that’s fun to say, like “rooster” but with a W. But it simply doesn’t have enough homes to match the high interest from potential buyers, according to Nick McNeil, a local Realtor with the Lux Group.
“The amount of demand and the absolute lack of inventory is nuts,” he says. “And there’s not much room for new construction in this area, with tight regulations on what can be built.”
Until there’s some kind of change in the supply and demand dynamic in the area, McNeil says, it’s going to be hard for buyers, and relatively easy for sellers—as long as they’re not also trying to buy.
“The best situation you can be in is if you can sell now,” he says.
Median list price: $384,250 Median days on the market: 25 Listings with a price reduction: 1 in 10
Amid the rolling hills of Eastern Pennsylvania’s Lehigh Valley, about 60 miles northwest of Philadelphia, Allentown has a few things going for sellers right now. The portion of homes with a price reduction is about half the national average, and homes are selling about 40% faster.
Like some other places on this list, the homes in this historic steel town are priced below the national average. But local incomes are a bit higher than average, offering buyers more affordability. That’s helping the real estate market to remain competitive as buyers seek out deals.
Allentown offers a mix of urban, suburban, and rural lifestyles, making it broadly attractive for buyers.
What’s especially notable about the area is the price growth over the past several years. Allentown metro prices have risen by 78% since before the pandemic, ahead of all the other places on this list.
For about the local median price in Allentown, buyers can find a five-bedroom bungalow in the Hamilton Park neighborhood west of downtown Allentown.
Median list price: $374,950 Median days on the market: 29 Listings with a price reduction: 1 in 11
Perched on the western shore of Lake Michigan in southeastern Wisconsin, Milwaukee is known for its breweries, including Miller and Pabst. It’s also where Harley-Davidson was founded. And it’s been a staple of housing affordability for some time.
However, prices have been rising in Milwaukee’s metro area: They rose by around 11% compared with this time last year.
The median number of days on the market is below the average now, just like it was before the pandemic. The same goes for the portion of listings with a price reduction. This is all very good news for home sellers hoping for a quick, profitable sale.
For $375,000, a buyer can get a large, four-bedroom home just 5 minutes from hiking trails, a golf course, and a dog park, all along the shoreline.
Median list price: $386,973 Median days on the market: 29 Listings with a price reduction: 1 in 9
The Virginia Beach metro area, a popular vacation spot for beach, maritime history, and seafood lovers, is another place where incomes are higher than average and home prices are lower.
Last year, sellers could count on getting multiple offers, usually leading to potential buyers bidding up the price, says Virginia Beach–based Realtor Ermen. Now, it’s not as easy to figure out that pricing sweet spot. If the home is listed too high, that’s when there’s eventually pressure to reduce the price.
In the month of May, even with a low number of price reductions, Erman says, “90% of price reductions were made before the listing hit the average time on market.”
That indicates sellers are getting antsy, and probably would have been better off pricing the home lower to begin with. But homes that are priced to sell are still moving briskly.
Median list price: $1,530,000 Median days on the market: 25 Listings with a price reduction: 1 in 9
San Jose is the oddball on this list.
Nestled in the heart of Silicon Valley, it is one of the most expensive real estate markets in the nation. Homes in this San Francisco Bay Area hot spot cost more than triple the national average, which means real estate attracts a very specific buyer.
Because San Jose is a global technology hub, its population is very diverse, and not just racially or ethnically. Roughly 40% of residents were born outside of the U.S., according to the U.S. Census Bureau. Most significantly, many residents have tons of money to spend, whether they’re high-salaried tech employees or they have had an entrepreneurial startup windfall.
Local real estate agents will tell you that San Jose is simply insulated from many of the market dynamics because the clientele is so wealthy. If they’re making an all-cash purchase, they don’t have to worry about higher mortgage rates. And that’s a big boon for sellers.
Median list price: $539,950 Median days on the market: 31 Listings with a price reduction: 1 in 10
Providence, home to Brown University and the Rhode Island School of Design, is a bustling town filled with older homes. About 50 miles southwest of Boston, it’s one of the medium-sized, Northeastern metros on our list that are enjoying especially strong housing markets right now.
Providence prices are significantly above the national average, but compared with nearby Boston, where the median list price is north of $850,000, Providence is a downright bargain.
Plus, it’s got a lot going for it. It boasts beautiful scenery along the Seekonk River, a thriving arts scene, and good jobs. The headquarters for CVS is located in nearby Woonsocket.
In Providence, for $550,000, a little above the local average, buyers can find a midcentury two-bedroom home with classic brick construction about 15 minutes from downtown.
Median list price: $229,950 Median days on the market: 31 Listings with a price reduction: 1 in 9
Home prices in this Rust Belt city, which has struggled in more recent years, are still dramatically lower than the national average—about 45% less expensive. And with the focus of buyers on affordability, it’s no wonder that Toledo has taken off.
In the past year, median list prices in Toledo have risen by 25% (10% per square foot), which is quite a bit higher than before the pandemic.
For less than the median list price in Toledo, buyers can get a massive, six-bedroom home in Toledo’s Old West End neighborhood, just northwest of downtown.