Extreme Housing Real Estate Swings: 10 Surging Stars and 10 Plunging Markets

by Herb Rim

Since January 2022, mortgage borrowing costs have surged nationwide, with the average 30-year fixed mortgage rate jumping from 3% to 7%. Some areas have experienced significant price declines while others see a housing boom.

According to the latest data from the Freddie Mac House Price Index, out of the nation's 100 largest housing markets, 77 have seen prices rise between June 2022 and June 2023. Conversely, 23 major markets have witnessed a year-over-year decline in home prices.

The ten markets that experienced the most substantial price increases are primarily concentrated east of the Rockies. These markets include McAllen, Texas (+11.8%); Knoxville, Tenn. (+8.3%); Omaha, Neb. (+8.1%); Hartford, Conn. (+8.0%); Rochester, N.Y. (+7.8%); Syracuse, N.Y. (+7.8%); New Haven, Conn. (+7.2%); Allentown, Pa. (+7.1%); Augusta, Ga. (+6.9%); and Oklahoma City, Okla. (+6.9%).

On the other hand, the ten markets experiencing the most significant declines in home prices are mainly located out West or in the states of Texas and Hawaii. These markets include Boise City, Idaho (-10.5%); Austin, Texas (-10.2%); Phoenix, Ariz. (-6.5%); Honolulu (-5.1%); Las Vegas (-5.0%); Ogden, Utah (-3.8%); Stockton, Calif. (-3.7%); Provo, Utah (-3.5%); Sacramento, Calif. (-3.5%); and Spokane, Wash. (-3.3%).

The housing market has experienced a stark division over the past year attributed to varying levels of sensitivity to interest rates and underlying economic factors. In particular, housing markets in the Western region, like San Francisco and Denver, have displayed heightened sensitivity to changes in interest rates. This sensitivity can be attributed to the significant presence of rate-sensitive industries, particularly the tech sector, which plays a major role in these Western markets. Additionally, the elevated home prices compared to local rents and incomes make these markets more vulnerable to corrections triggered by mortgage rate shocks.

The soaring home prices in the Western region were a consequence of a prolonged housing shortage spanning over a decade, coupled with a simultaneous tech boom. These factors contributed to the outperformance of Western markets compared to their Eastern counterparts between 2012 and 2021.

In contrast, the housing markets in the eastern half of the country had less skewed fundamentals, including house price-to-rent ratios that were more balanced. This relative affordability, combined with the presence of fewer rate-sensitive industries, provided a cushion for the eastern markets. As a result, the housing declines that occurred during the latter half of 2022 were mitigated in these regions.

According to the June reading of the Freddie Mac House Price Index, 23 out of the nation's 100 largest housing markets experienced a year-over-year decline. Interestingly, only three of these markets saw a month-over-month decline between May 2023 and June 2023. On the flip side, 97 of the largest housing markets witnessed a month-over-month increase in home prices during the same period.

Overall, they expect that tight inventory will lead to a decrease in sales volume but will likely keep national home prices elevated.

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Herb Rim

Realtor | License ID: 01870707

+1(818) 699-9175