I’m a Real Estate Expert: These Are the 8 Most Fragile Housing Markets in the US Right Now
Written by
Martin Dasko
Edited by
Levi Leidy
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Anyone following the real estate market over the last few years has seen a significant increase in housing prices. With people spending more time at home due to restrictions and interest rates hitting record lows, property prices skyrocketed. The overall price surge in the economy led to the Fed getting involved when it became evident that inflation wouldn’t be transitory.
With interest rates still increasing, many analysts wonder how this will impact the housing market. Some felt that housing prices would decrease due to higher interest rates. Those looking to enter the real estate market have also been waiting for price drops so that they can finally purchase their first home. GOBankingRates reached out to real estate experts to determine the most fragile U.S. housing markets — meaning they’re likely to see price drops soon.
What’s Happening With the Real Estate Market?
The aggressive rate hike campaign from the Fed has been hitting the real estate market. In the attempt to increase the cost of borrowing money to slow down the economy, there are some signs that it’s working. The real estate market has been in a unique position for a while now, and some figures are worth mentioning.
Existing Home Sales Have Dropped
According to the National Association of Realtors, existing home sales dropped 3.3% in June from the month before, and sales are down by 18.9% year-over-year. These are homes that have been previously occupied by someone and not new builds. Regionally, the South and West saw decreases, the Midwest was steady, while the Northeast had some increases. Overall, all four regions saw sales drop on an annual basis in June.
Housing Prices Have Remained High
While existing home sales have decreased, home prices have increased overall, with May’s median price reaching $410,200. This figure is only 1% off NAR’s reported all-time high price of $413,800, which was from June 2022 for existing homes. The limited supply caused by homeowners holding on to lower rates means that some bidding wars still lead to homes selling above list price.
New Build Sales Have Decreased
After going up 6.6% in May, the sales of newly built homes were down 2.5% in June. However, it’s worth noting that newly constructed home sales were still up 23.8% on an annual basis. The joint report from the U.S. Department of Housing and Urban Development and the Census Bureau also stated that prices of new homes went down to a median price of $415,400 from $416,300 in May.
The increased mortgage rates have led people to stay in their current homes longer since they likely locked in lower rates. This has decreased the overall inventory, so those looking to enter the market have turned to new builds. However, new builds are also experiencing unique issues as the higher interest rates mean that borrowing money is more expensive for the builders.
What Are the Most Fragile Housing Markets Right Now?
With interest rates increasing and new builds experiencing a surge recently, there are markets where existing home sales could begin to lose their value. GOBankingRates spoke with two real estate experts who provided insights on the most fragile housing markets in the country.
The Most Fragile Housing Markets
“Home prices have risen relatively more in south Florida than elsewhere since the start of the pandemic,” according to Selma Hepp, chief economist for CoreLogic. “This increases the risk of price declines to bring local prices more in line with local incomes. Our CoreLogic Market Risk Indicator, a monthly update of the overall health of housing markets across the country, predicts that Cape Coral-Fort Myers, Florida, is at very high risk, with more than a 70% probability of a decline in home prices over the next 12 months.”
“Since last year at this time, prices have decreased the most in Austin, San Francisco, Salt Lake City and Las Vegas, along with Raleigh, San Antonio and Detroit,” commented Suzanne Miller, CEO and president of Empire State Properties, a New York-based real estate company. “However, because housing costs are still very high in the largest metros, rents are continuing to rise and set records. Homebuyers are nervous and don’t know when or if it will become a buyers’ market again.”
Miller, who founded Empire over 30 years ago, elaborated, “Everything is fragile now in real estate because we are coming out of an unprecedented period in history. Interest rates, financing and new construction are all areas affecting the market right now.”
Will Housing Prices Start To Drop Soon?
“Prices are remaining high because there is not enough inventory to satisfy demand and owners who locked in a very low mortgage [rate] during the pandemic are hesitant to move and pay another mortgage at 7% instead of 3%-4% that they are paying now,” said Miller.
If rates continue to increase, then it’s likely that current homeowners will want to hold on to their low fixed rates and inventory will remain an issue.
The data shows that existing home and new build sales are slowing down, but that could also be because it’s the summertime. Many analysts are waiting to see what happens with the rate hikes and how the real estate market continues to respond. We’re currently in a unique situation with higher rates hurting the inventory available causing issues with supply and demand.
Should You Be Investing In Real Estate?
According to Miller, “At this stage, I think any municipality, city or town can return to good health as long as there’s a plan in place that merges residential, retail, office and manufacturing together to provide homeowners of the future with what they want.”
While many prospective homebuyers are patiently waiting to enter the market, those locked in at lower interest rates stay in their homes longer, impacting the inventory. With the average rate on a 30-year fixed mortgage slightly below 7%, the tight supply doesn’t appear to be loosening up soon.
However, existing home sales are dropping and interest rates might be nearing highs, so there are expectations that overall home prices could finally decrease in the near future. But as we’ve seen over the last few years, there’s no telling exactly what will happen to the real estate market next.
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