- A number of major metros are seeing higher average price drops on homes listed for sale.
- According to consultant Nicholas Gerli, this trend predicts a slowdown in the market and an increase in inventory.
- Using Gerli’s method, Insider identified the top 15 US cities with house price corrections.
Growing fears of a possible real estate crash are keeping real estate investors and regular buyers up at night.
The U.S. real estate market has become overheated in recent years as strong demand from first-time buyers and competition with investors has consistently outpaced the shortfall in housing supply. Since the spring of 2020, median home prices have jumped nearly 27%, according to data from the US Census Bureau and the Department of Housing and Urban Development.
Remote workers migrating from major metropolitan areas to lower-cost hotspots have been an additional igniter in the fire, bringing their higher incomes and savings to smaller markets and sparking miniature bubbles in cities such as Nashville. , Atlanta and Columbus, OH. And as mortgage rates continue to climb, experts have increasingly warned of particularly overpriced properties in more tertiary markets such as Boise, Ogden and Spokane.
Now the question of the day is whether this momentum will continue or whether the US housing bubble will burst dramatically. While the 2008 real estate crash, which triggered a global financial crisis leading to the Great
is still fresh in the minds of many homeowners, the general consensus is that the market today is in a very different position thanks to changing lending practices and standards.
Signs of softening
Nicholas Gerli, CEO of real estate data analytics firm Reventure Consulting, believes we may have seen the spike in particularly buoyant markets and asking prices could start to come back down to earth.
In a recent YouTube video, Gerli referred to increasing home price declines in the market as a sign of overvaluation and/or buyer fatigue. Specifically, he highlighted a home in Long Island, NY, which was priced 8% lower to $972,000 from $1,054,000 after just two weeks on the market, leaving it with an even lower price. lower than the property’s asking price from 2017. And there are certainly many other sellers in this market readjusting their prices to stay competitive.
“If sellers are increasing the amount they are reducing the price of their home, it is a sign that they are getting desperate and want to bail out the housing market before it crashes,” Gerli explained. in the video. “It’s a trend that’s happening in some markets, more than others, as one of the first harbingers of a real estate crash.”
Indeed, historically, an increase in the average number of price cuts — and the larger the dollar amount of those price cuts — in a particular metro area indicates that that market is beginning to soften, Gerli said. For example, in Boise, ID, which he called the “biggest real estate bubble” in the United States, the average price drop has steadily increased, indicating a flurry of sellers trying to unload their properties before the bubble bursts.
But the so-called “seller desperation,” as Gerli calls it, could stem from two reasons.
First, sellers could simply try to get in on what is presumed to be the top of the market before an overly inflated housing market corrects itself. But the rush to cut prices could also be due to an influx of new inventory earlier this year as increased housing supply pushes sellers to lower existing prices, improving a market’s competitiveness.
Taken together, these factors could indicate that overheated markets are finally cooling enough to return to normal.
“Just because a market sees a big increase in the value of price declines and a big increase in seller desperation doesn’t mean it’s going to have a major long-term collapse,” Gerli pointed out. “It just means that in the short term we are seeing an easing.”
To truly predict a housing correction versus a crash, Gerli advised analyzing fundamentals such as a region’s job growth versus rate of homebuilding, its three-year rate of appreciation relative to historical standards and the value/earnings ratio of a property, which informs affordability.
Using data from Zillow, Insider followed Gerli’s methodology to identify the top 15 markets in the US with the biggest increases between their March 2022 and March 2021 price declines. New York leads the pack in markets potentially cooling, which are listed below in descending order of average price declines.
“[In these areas]it’s a good bet to see more inventory and more price cuts in the future,” Gerli said.