For months, I, along with many prominent housing market analysts, have been forecasting a big shift in the housing market at some point in 2022.
For most of the last two years, we’ve been in an unbalanced housing market that strongly favors sellers. Bidding wars, offers over asking, and waived contingencies have become the norm. But as interest rates rise, affordability declines, and fears of a recession loom, buyers are gaining back some power in the housing market.
As the dynamics of the market change, appreciation rates should cool dramatically and become flat or even negative. But real estate is local, and I believe the most likely scenario over the coming months is that some markets will decline while others will continue to grow, albeit at a far more modest pace than over the last several years.
The question then becomes, which markets are at risk of decline, and which will see prices stay steady or even grow? In this article, I will explore data to determine the short-term strength of individual housing markets in the U.S. to help you identify opportunities and make informed investing decisions.
Below you’ll find a complete analysis and a downloadable city-level spreadsheet.
The Big Picture
Before we get into the localized data, let’s look at June’s housing market data on the national level as it helps provide context for the regional differences.
First and foremost, things haven’t changed too much in terms of prices and appreciation rates just yet. The median home price for the week ending July 3 was still up about 12.5% year-over-year. That’s down from last summer’s peak when appreciation rates were around 20%, but this level of growth would be unprecedented in any pre-pandemic period.
Although prices haven’t come down on a national level just yet, it is worth noting that price drops are up almost 4% YoY and are much higher than at any point since at least 2019.
A quick note on price drops: They’re worth tracking, but I don’t put much weight on this data point. Price drops often reflect the behavior of overzealous sellers rather than a lack of demand. Following two years of unprecedented seller power, I’d expect an increase in price drops in almost every market—even the strong ones. Huge increases in price drops worry me (Austin, TX has seen a nearly 500% increase in price drops YoY), but seeing double-digit increases doesn’t concern me as much.
That being said, price drops can be a lead indicator for shifts in the market but should be considered alongside other indicators.
As I’ve written before, the main trend shifts that need to occur for housing prices to moderate or decline is that both active listings and days on market (DOM) need to increase. You can read all about why I believe this here, but in short, active listings and days on market are good measurements of the balance between supply and demand in the housing market. When inventory and DOM are low, it’s a seller’s market, and prices generally rise. When inventory and DOM rise, buyers gain power, and prices flatten or decline.
As you can see in this chart provided by Realtor.com, active listings are starting to tick up nationally and are up about 19% over June 2021. To be clear, active listings are still dramatically below where they were pre-pandemic. Still, we’re no longer in the declining inventory (on a year-over-year basis) era that lasted from April 2020 to May 2022.
June 2022 was the first month we’ve seen year-over-year gains in active listings for more than two years.
On the other hand, days on market (DOM) is still near all-time lows and is about half of what it was in 2019. This means at a national level, there is still strong demand for housing. If demand had evaporated, listings would be sitting on the market longer, but they’re not.
Note that in both of these charts, some of the recent increases are due to seasonality. You’ll notice that active listings and DOM typically rise over the summer and decline in the winter, and you need to account for that. We’re looking for when DOM sees year-over-year gains, which hasn’t happened yet.
All told, on the national level, the housing market seems like it’s starting to shift, but modestly. DOM is still low, signaling sufficient demand, leading to prices remaining up a whopping 12.5% year-over-year. For prices to moderate or decline, DOM and active listings need to get much closer to pre-pandemic levels, and we’re not even close to that yet.
So, why then do I believe the housing correction has started? When you look at the data for individual housing markets, it tells a much more nuanced story.
Regional Housing Markets
As is often said in this industry, real estate is local. Recent housing market data makes that very apparent.
To showcase the differences, let’s look at a few of the recent boom’s biggest winners: Boise, ID, and Asheville, NC.
Boise was perhaps the hottest housing market over the last several years, with prices increasing 59% from June 2019 to June 2022. Those are incredible gains, but to me, Boise is at risk of losing a small amount of those gains.
Remember, my hypothesis is that markets where active listings and days on market are near pre-pandemic levels are at the greatest risk of a correction. For Boise, not only have active listings risen 130% year-over-year, they are actually 8% above pre-pandemic levels (which I measure as June 2019 compared to June 2022)! There are only a handful of markets where this is true, and Boise is the most notable.
|Boise, Idaho||Median List Price||Active Listings||New Listings||Days on Market||Price Drops|
|June 2019 – June 2022||59%||8%||40%||-13%||86%|
DOM is up 4% year-over-year but is still down 13% from before the pandemic. But if you combine those two data points with a big increase in new listings and huge increases in price drops, this looks like a housing market in transition to me.
Does this mean that Boise will see a crash in prices? No. That could happen, but I think the more likely scenario is a balanced market where buyers actually have some power. This is just an informed guess, but I do expect we’ll see price declines in Boise at some point in the coming year or so, but probably only single-digit declines. What’s more certain to me is that buyers will be able to negotiate, and better deals will emerge in markets like Boise.
To contrast Boise, let’s look at another recent boom town, Asheville, North Carolina.
Asheville’s appreciation since 2019 was 41% (more modest than Boise but still enormous) and has been up nearly 20% in just the past year.
|Asheville, North Carolina||Median List Price||Active Listings||New Listings||Days on Market||Price Drops|
|June 2019 – June 2022||41%||-65%||-7%||-47%||-53%|
But looking at the lead indicators for Asheville, the story is different from Boise. Rather than skyrocketing, active listings are down 11% year-over-year! Days on market are also down 8% year-over-year, and price drops are up only 18% YoY. To me, this shows a housing market that is very strong and is unlikely to see a big change in prices. Sellers still have the power here.
As you can see from these two examples, different housing markets point in different directions. I picked two well-known hot markets for this example, but you can see these discrepancies across the board. Reno, Austin, and Phoenix look like they’re transitioning, while Miami, Richmond, and Tallahassee still look like strong seller’s markets.
You need to look at data for each individual market. Lucky for you, I’ve put together a spreadsheet with data from Realtor.com’s Residential Listings Database to help you see what is happening in your market. You can download that below.
On a national level, the housing market is still doing very well. Prices are up double-digits year-over-year, inventory is starting to tick up, but days on market remain extremely low.
But when you read between the lines and examine some reliable lead indicators for the housing market, you can see that it’s in transition. Sellers are losing their iron grip on the market, and buyers are gaining power. Homebuyers and investors are better positioned to negotiate and find deals.
On a localized basis, these shifts in trends are even more pronounced. Some markets seem very strong and will likely keep growing (but more modestly), while other markets seem like they could be heading for price corrections in the coming months. To be an informed investor, you must understand your local market. To me, the most important things to look at are active listings (or other inventory measurements) and days on market. You can Google those in your local area or download my spreadsheet that compares June 2022 numbers to both June 2021 and June 2019 for hundreds of markets.
Remember, the metrics I am covering here are lead indicators for the short-term prospects of the city in question. To look at the long-term potential, you should look at macroeconomic data like population growth, income growth, and construction.
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What are you seeing in your local market? Is the dynamic between buyer and seller starting to change? Let me know in the comments below.