For years, US real estate prices have been on the rise, pricing out many first-time homebuyers and even real estate investors. However, a recent report from Redfin reveals that a trend we haven’t seen in years- a decline in home prices- has finally occurred.
The Redfin Report
Redfin reported that this past March, home-sale prices fell slightly by 0.1% year-over-year (YOY). The median home price (based on metro areas Redfin tracks) was $295,100. And while it may seem like an insignificant decrease, it’s the first one the US housing market has witnessed in years since February 2012 when the median home sale price was $171,600.
The major reason for this decline seems to be a shift in the price range in which homes are being sold. In fact, only 9 out of the 85 largest metros that are in Redfin’s database experienced a YOY decline. These included cities like San Jose (13%) and San Francisco (1%). What’s more important to note is that there were double-digit drops in the number of real estate properties that sold in these cities and other major cities on the West Coast like Los Angeles and Seattle. At the same time, more affordable markets with lower real estate prices on the East Coast saw large gains in their annual sales. Because the buying trends experienced a major shift from expensive to affordable real estate, the median home sales price reflects this with a slight drop.
Redfin Chief Economist, Daryl Fairweather, had this to say about the trend shifts:
Homebuyers have backed off in West Coast metros where home prices have risen far out of their budgets. The opposite is happening in more affordable metros where buyers are eager to buy now to take advantage of low mortgage rates. In California, where the tax burden is high, some people are finding they have to move out of state to afford to buy a home. As a result, home sales are down in metros throughout the state.
Essentially, it’s important to keep in mind what these numbers are really telling us as just considering it a “decline” doesn’t reveal as much because of the varying trends among different cities.
For example, we can look at the trend in the number of home sales. While the average number of homes sales increased in the US in March, 37 major Redfin metros out of 85 saw a decrease while only 24 saw double-digit increases YOY. And if we examine the median home price in the markets that experienced gains vs. those that experienced losses, we understand why the numbers for the US housing market as a whole look the way they do. According to Redfin data, the locations that saw the biggest decrease in home sales were 2.5 times more expensive than those that saw gains.
The Key Takeaway for Real Estate Investors
The headline “real estate prices drop for the first time in years” makes it sound like you should jump on the chance to enter the market. Others may even fear that it means bad things are up ahead for real estate. In reality, the trends among individual cities simply reveal a buying shift from expensive to affordable markets.
If you do wish to invest in real estate now, just pay close attention to what market you choose to enter. While the West Coast can hold some lucrative investment opportunities (yes, even San Francisco), you may find more affordable real estate prices on the East Coast. Be sure to analyze any market and neighborhood you choose to invest in with Mashvisor.
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