Given rising mortgage rates that spiked to their highest levels since the 2008 housing crisis and fears of a recession, the real estate market has been preparing for a slowdown. Many experts are cautioning sellers to say goodbye to the pandemic housing boom and welcome an era of fewer bidding wars and higher inventory. That said, national home prices are expected to increase 4.3% between June 2022 and June 2023, according to CoreLogic
Here’s a rundown of where we might expect to see falling housing prices, based on cities where sellers are slashing asking prices, markets most vulnerable to a recession and overvalued communities that are set for a correction.
U.S. Cities Where Sellers Are Lowering Asking Prices
Many sellers have slashed their asking prices in recent months. Some cities—particularly those that were popular early on in the pandemic—are seeing this trend more widely than other areas, according to a recent report by national real estate brokerage Redfin
Some of the hidden gem cities that experienced an influx of new residents during the pandemic are now cooling the fastest. Boise, Idaho, for example, touted as the most overvalued housing market in America where prices spiked as much as 80% last year, is seeing a decline. Recently, two-thirds of sellers (61.5%) in Boise have cut their asking prices, said Redfin.
“Higher mortgage rates and a potential recession are causing prospective buyers in popular migration destinations to press the pause button, and they’re also having a big impact on workers in big job centers who rely on their stock portfolio for down payments,” Sheharyar Bokhari, senior economist at Redfin, said in the report. “Sellers are adjusting their expectations in real time as they realize they may not get the price their neighbor got two months ago.”
Denver is also seeing a dip, with 55.1% of sellers lowering home asking prices. Some 51.6% of sellers in Salt Lake City and 49.5% of sellers in Tacoma, Wash. recently cut prices. Other metro areas that are following this trend include Grand Rapids, Mich. (49.3%), Sacramento (48.7%), Seattle (46.3%), Portland, Ore. (45.7%), Tampa, Fla. (44.5%) and Indianapolis (44.1%).
“My advice to prospective sellers is to list their home slightly lower than they think they should and be patient,” Denver Redfin agent Andy Potarf said in the report.
Markets Most Vulnerable to a Recession
In a separate survey, Redfin looked at cities where residents have high debt compared to income and where home equity remains vulnerable as a result of this. In these areas, homeowners are more likely to foreclose or sell at a loss.
Riverside, Calif. topped the list of cities most vulnerable to a recession. Riverside “has highly volatile home prices and it was a hot destination during the pandemic, both for people permanently relocating and those buying second homes,” according to the report. Boise, Idaho came in second, followed by Cape Coral, Fla., North Port Fla. and Las Vegas. Sacramento, Calif., Bakersfield, Calif., Phoenix, Tampa, Fla. and Tucson, Ariz. followed behind as risky markets that could be impacted by a recession.
Cities That Are Overvalued and Set for a Correction
An analysis from Florida Atlantic University and Florida International University uncovered the most overvalued housing markets in the U.S. And, well, since what goes up often comes down, these cities are also expected to see a downturn in the months ahead.
It’s no surprise that Boise, Idaho topped this list as well, with a current premium of 73%. Austin, Texas followed behind with prices up 68%, along with Ogden, Utah (65%), Las Vegas (61%), Atlanta (58%), Phoenix (58%), Provo, Utah (57%), Fort Myers, Fla. (56%), Spokane, Wash. (56%) and Salt Lake City, Utah (56%).
As you can see, some cities like Boise, Phoenix and Salt Lake City made multiple lists, which makes them prime targets for falling home prices. Meanwhile, the rapid growth in home prices that transpired over the past couple of years is generally expected to slow.