These 11 Markets Used to Be America’s Hot Spots. Now They’ve Gone Cold.

High interest rates and escalating prices could only go on for so long before prospective buyers gave up, resigned themselves to remain renters, or simply stayed where they were. 

Now, many U.S. cities are flipping. Formerly hot markets with limited inventory that once entertained frenzied bidding wars are seeing price drops as sellers attempt to lure buyers back into the market.

Here’s Where House Prices Are Falling Fastest

Not surprisingly, some of the other cities on the list are also where prices have recently been falling fastest. According to realtor.com data, Miami tops the list of fastest-depreciating cities, as it has conversely done on fastest-appreciating home prices over four years. This year, the median home price plummeted 11.2% from a year earlier to $439,000.

The other 10 cities on the list include, with the percentage change year over year and current median home price:

To put the numbers in context, Zillow revealed earlier this year that the average household would need to earn $47,000 more this year to afford a home than a mere four years ago.

Prices Cool as Active Listings Jump 37%

For the four weeks that ended on June 23, the typical home in America sold for below its asking price. That’s an epic stat from Redfin, considering the ongoing narrative since the pandemic has been a lack of inventory and high rates causing price escalations. 

According to Redfin’s data, nearly 7% of home sellers dropped their asking price, the highest number since November 2022. Realtor.com data shows similar numbers. In the meantime, the large amount of new inventory in the Sunbelt states and Midwest has tipped the supply-and-demand balance.

Here are some key takeaways:

• Pending home sales are down 4.3% year over year, the biggest decline in four months. (Redfin)
• 60% of homes are listed for at least a month without going under contract. (Redfin)
• The total number of unsold homes, including those under contract, increased by 22.4% compared with last year. (Realtor.com)
• Listings are up 37% year over year, reflecting eight straight months of growth. (Realtor.com).
• Inventory in the $200,000 to $350,000 price range outpaced all others, growing 50% compared with last year. (Realtor.com)
• Smaller, more affordable homes in the South are fueling inventory growth. (Realtor.com)

Why Are Prices Falling?

There’s no doubt that interest rates have a lot to do with it. Along with home prices, the double whammy of unaffordability has pushed many would-be buyers to their limit. 

That doesn’t mean we’re about to enter a real estate crash because many houses in different parts of the country are still sold above asking. However, with house prices now 47% higher than in 2020, the upward push can only go on for so long before buyers drop out and sellers get a reality check. 

According to the various reports highlighted by CNBC, the general trend is a cooling market, with inventory slowly normalizing but still down 32.4% compared with typical 2017 to 2019 levels.

Wages Haven’t Increased Fast Enough

While wages have tended to mirror inflation since 2020, the same cannot be said of wages’ relationship to home prices. Generally speaking, since the 1960s, home prices have risen 2.4 times faster than inflation. To buy an affordable home in 2024, comparable to what you would have had to spend in the mid-’80s, requires a household income of at least $134,000. The median household income in the U.S. is only $74,580. 

Many metro areas have seen triple or quadruple home price increases since 2000, with some even seeing close to double since 2020. California and Florida dominate the list of fastest-appreciating homes between 2000 and 2023.

What This Means for Investors

The places where house prices are falling fastest don’t correlate to where prospective landlords could look for cash flow, except for possibly Detroit and some of the Midwestern cities. However, for investors looking to house hack or those who can afford to buy a personal residence that has built equity, catching a city in the midst of a correction is always a prudent move.

Each city in the U.S. is markedly different, with house prices often fluctuating from one street to another. “Some buyers think they can get a deal because they’re hearing the market is cool, and some sellers think every home will sell for top dollar no matter the condition,” said Marije Kruythoff, a Los Angeles Redfin agent, in a press release. “In reality, everything depends on the house and the location.”

The Ultimate Buyer’s Market That Never Got Hot

While everywhere else was exploding with growth during the pandemic, New York City was one of the biggest losers and one of the few major markets to actually lose value in 2020.

Today, there’s an opportunity in the city if you can afford to cash in. In Manhattan, rising inventory has seen condo prices fall 3% to an average price of “just” $2 million. That seems ludicrous to invest in, but according to CNBC, there is a 9.8-month backlog of inventory. Anything over six months constitutes a buyer’s market.

Interestingly, 62% of the deals in Manhattan were all-cash purchases, which signals that high interest rates are less of a factor here than they are elsewhere. Rents have not risen in six months, with the average holding steady at $5,000 a month. 

While Manhattan might be out of reach for many investors, for those who can afford it, it is one of the most lucrative markets in the country due to its limited size (Manhattan is an island, after all). For example, a recent article in Bloomberg reported NYC’s rental vacancy rate to be a meer 1.4%. On top of that, Manhattan real estate can be relied upon to increase significantly in value over time, so a temporary downturn is a golden opportunity to buy—although, don’t expect any cash flow if you’re financing. This is a market to park your cash and watch equity increase.

Final Thoughts

Though some previously inflated cities have seen price drops, the U.S. is a country of extremes, no more so than with real estate. According to a recent SmartAsset analysis, it’s still possible to live in many U.S. cities by earning the median American yearly wage for full-time workers of around $60,000. It’s also still possible to cash flow in many cities without making a huge down payment on homes that generally cost below $240,000.

In short, don’t look for falling home prices as an absolute sign to invest in that market. Instead, calculate how much of a down payment you can afford, the type of neighborhood you want to be in, and the ROI that works for you. Increased inventory makes the search easier than it once was.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.