Where home prices are cooling off and where they aren’t

If there’s been one constant in the U.S. housing market over the past decade or so, it would have to be the seemingly unflinching ascent of home prices. Mortgage rates have been on a dramatic roller coaster, buyer interest has alternately intensified and receded, but home prices have only known one direction: upward.

Recently, however, even this narrative has changed as home prices in some cities and regions have begun to cool. The average median home price has consistently gone up over the last few years, but the year-over-year growth of home prices is becoming less and less. Just look at the number of metro areas that saw a double-digit growth in home prices over the last few quarters:

• Q4 2021: 67%
• Q1 2022: 70%
• Q2 2022: 80%
• Q3 2022: 46%
• Q4 2022: 18%
• Q1 2023: 7%
• Q2 2023: 5%
• Q3 2023: 11%
• Q4 2023: 15%

Home prices depend on where you are

While this is a nationwide trend, home price changes vary greatly from one area to another. That’s why it’s so important to work with local experts, including a local loan officer who knows what’s happening in your market.

Naturally, this comes as welcome news to legions of homebuyers—especially first-time homebuyers—who have at times felt shut out by buyers with deeper pockets and the ability to pay in cash.

However, this leads to a few questions: Why is the cooling in home prices happening now and where is it most—and least—prevalent? Does it show that the market is finally returning to earth? Let’s take a deeper look at what’s happening with home prices and try to find some answers.

What cools a market anyway?

To understand trends in the housing market, it makes sense to look at the larger economy.

Let’s revisit the upheaval in the U.S. housing market over the past 3 years. Beginning in March 2020, COVID-19 dramatically changed the way Americans live in their homes. Millions of professionals quickly transitioned to remote work and began looking for larger homes where they could acquire a home office and other amenities to suit their pandemic lifestyle.

At the same time, to reduce market volatility, keep credit flowing and limit economic damage during this unprecedented event, the federal government began purchasing mortgage-backed securities in significant quantities, causing mortgage rates to plummet and the housing market to explode. This led to higher home prices as increased competition ignited a red-hot housing market.

Fast forward to today and we find ourselves in an entirely different economic climate. Both the rise in inflation and the uptick in mortgage rates (on a roller coaster since the fall of 2022) have hugely impacted the housing market and the sentiment of would-be homebuyers. When mortgage rates tick up, mortgage applications go down .

Inventory

The housing market is also incredibly reactive to supply and demand. Not enough housing? That feeds into a hot market where dwindling inventory ratchets up competition leading to higher prices. Is there a noticeable uptick in new construction? If other factors align, this can help cool the market. Available housing for purchase is a crucial “temperature” gauge and is unique to local markets. One market may have plenty of available homes, while another doesn't.

Where home prices are cooling off in 2024

The key fact to know is this: while some cities and regions are experiencing a clear reduction in home prices related to the above-mentioned factors, many others have seen little or no cooling. Supply and demand have a way of imposing its own logic and there are areas—cities, suburbs and sought-after zip codes—where sticker prices have stayed stuck.

We’ll look at those places in a moment, but right now let’s tick through some popular areas that have begun to cool off as spring 2024 approaches.

We looked at data from the Realtor.com® Economic Research team, and our analysis is supplemented by insights from the experts at Research by Rate.com . We looked at the top 250 housing markets across the country, and picked out the ones that showed the greatest decrease in median home prices, as well as the areas with the greatest increases, from January 2023 to January 2024.

South Bend-Mishawaka, IN-MI

• Median listing price: $212,425
• Change year-over-year: -29.1%

Santa Cruz-Watsonville, CA

• Median listing price: $106,2000
• Change year-over-year: -17.4%

Lubbock, TX

• Median listing price: $260,000
• Change year-over-year: -12.7%

Accounting for cost of living

What do these metro areas have in common? Well, according to the stats provided by rate.com/research, all of them rank in the middle of the pack in terms of cost of living, which looks heavily at the cost of housing in its calculations. The fact that these areas are seeing their home prices come down may help improve the cost of living for those who live, or are moving, there.

Greenville, NC

• Median listing price: $302,450
• Change year-over-year: -11.3%

Lincoln, NE

• Median listing price: $389,950
• Change year-over-year: -11.3%

Lafayette, LA

• Median listing price: $260,000
• Change year-over-year: -9.6%

Evansville, IN-KY

• Median listing price: $234,900
• Change year-over-year: -9.5%

Amarillo, TX

• Median listing price: $314,503
• Change year-over-year: -9.2%

Similar-sized cities

When looking at this list, it’s interesting to look at similarities in their populations, along with their proximity to larger population centers. Eight of the ten metro areas have populations between 100,000 and 300,000, with Lincoln, NE leading the way. None of these cities are amongst the 50 most populous.

When placing them on the map though, many of them are within a few hours’ drive of a larger population center like Chicago, San Francisco, Milwaukee or New Orleans. That could suggest that people are moving out of the so-called “Zoom Towns” that saw home price appreciation during the pandemic.

Baton Rouge, LA

• Median listing price: $294,900
• Change year-over-year: -8.8%

Oshkosh-Neenah, WI

• Median listing price: $307,200
• Change year-over-year: -8.7%

Metro regions avoiding the chill

So where is it good to be a seller? As mentioned earlier, there are plenty of regions that have yet to see home prices cool down in a significant way. Interestingly, the metro areas that are seeing home prices rise are mainly in the Midwest and the Northeast, plus a couple in California.

Santa Maria-Santa Barbara, CA

• Median listing price: $1,749,500
• Change year-over-year: 40.0%

Utica-Rome, NY

• Median listing price: $234,500
• Change year-over-year: 34.1%

Canton-Massillon, OH

• Median listing price: $239,900
• Change year-over-year: 31.7%

Salinas, CA

• Median listing price: $1,230,750
• Change year-over-year: 26.3%

Rockford, IL

• Median listing price: $207,250
• Change year-over-year: 25.7%

Syracuse, NY

• Median listing price: $256,950
• Change year-over-year: 25.3%

Oxnard-Thousand Oaks-Ventura, CA

• Median listing price: $1,057,000
• Change year-over-year: 20.1%

Lansing-East Lansing, MI

• Median listing price: $224,950
• Change year-over-year: 19.9%

Erie, PA

• Median listing price: $224,950
• Change year-over-year: 19.7%

Kingston, NY

• Median listing price: $558,225
• Change year-over-year: 19.1%

Work with a local expert

Regardless of current temperature, the housing market is fluid, and we should always expect change as demand fluctuates, inventory increases and sellers take the initiative to reduce asking price to better accommodate today’s homebuyers and increase the likelihood of an expeditious sale. That’s why it’s so important to work with local experts, like a loan officer who understands what’s driving home prices in your market.

To gain additional insight into conditions on the ground, it’s useful to reach out to a trusted lender who can walk you through today’s rates and explain the value of different loan terms, including 30-year fixed rate mortgages, 15-year fixed-rate mortgages and adjustable rate mortgages (ARMs). Depending on your financial resources and long-term goals, you can find a loan that works for you today–regardless of market volatility.