Home for sale in Chicago
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Cities Where Home Prices Are Falling as Mortgage Rates Rise

Mohit Oberoi, CFA - Author
By

Jul. 15 2022, Published 6:02 a.m. ET

The U.S. housing market has started to show signs of stress after two years of price appreciation. The consensus still seems to be that, amid the rising mortgage rates, home price appreciation with slow and there won't be a housing market crash. However, home prices are falling in many U.S. cities.

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U.S. inflation rose 9.1 percent in June, marking a multidecade high. Inflation has a multifaced impact on home prices. It boosts the cost to build new homes but also mortgage rates, meaning that housing prices fall.

Housing is no longer a sellers’ market

Housing has been a sellers’ market over the last two years. There was a shortage of new homes amid labor shortages and other supply-chain issues. The inventory of pre-owned homes was also below the historical average.

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us housing market crash
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Additionally, amid 2021's strong stock and labor markets and the Fed’s accommodative monetary policy pushing mortgage rates to all-time lows, people were comfortable buying a new home. The rapid rise in home prices pushed home affordability to a multiyear low.

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Home prices are falling in many U.S. cities

The tide is now turning for the U.S. housing market. Whereas the supply of homes has improved, buyers have dropped out of the market due to high mortgage rates. Housing is pivoting to a buyers’ market, with sellers lowering prices to lure buyers.

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Boise is seeing the worst cuts in sellers’ asking prices

According to Redfin, in Boise, Idaho, 61.5 percent of home sellers lowered their asking price in June. This was the highest percentage in U.S. cities. Denver came in second, with 55.1 percent of sellers lowering their asking price, and Salt Lake City Utah was third, at 51.6 percent. The figures stood at 49.5 percent in Tacoma, Wash., and 49.3 percent in Grand Rapids, Mich.

In the following cities, between 44 and 49 percent of home sellers lowered their asking price in June:

  • Sacramento, Calif.
  • Seattle.
  • Portland, Ore.
  • Tampa, Fla.,
  • Indianapolis.
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On average, U.S. home prices have risen 39 percent since March 2020, and mortgage rates have doubled this year. Meanwhile, wages haven't risen significantly, creating a perfect storm.

The U.S. housing market could see more correction

On July 14, JPMorgan Chase released its second-quarter earnings. CEO Jamie Dimon, who has warned of an “economic hurricane,” issued another grim note. He stated that the current geopolitical tensions, rising rates, unprecedented quantitative tightening, high inflation, and falling consumer confidence all threaten the health of the global economy. The U.S. housing market looks ripe for a price correction.

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