House Prices Are Crashing in These Seven Cities

After steadily falling for seven consecutive months, home prices made a modest jump back in March and April, according to the Zillow Home Value Index (ZHVI), showing that the correction of the housing market that began last summer might be nearing an end across the country.

As of April, the average U.S. home was valued at $339,048, compared to $337,907 in March and $336,729 in February. At their peak in August 2022, the average U.S. home was valued at $341,607, according to the ZHVI.

Home prices have fallen across a third of the country during the first quarter of 2023, according to recent data from the National Association of Realtors—a much-awaited drop following two years of housing boom in America.

Home prices skyrocketed since the beginning of the pandemic, as aspiring homebuyers encouraged to enter the market by low mortgage and interest rates were forced into bidding wars by a lack of inventory. The situation, exacerbated by a sudden rise of mortgage rates last year, became unsustainable for many who could no longer afford to buy a home, and sales dropped in summer last year—with the result of triggering a cooling off of the market.

But while the market is now generally strengthening, with prices rising in parts of the Midwest, South, and Northeast, there are exceptions to this recent growth: in the cities that have experienced the steepest declines in the past few months, prices have continued falling.

These are the metros in the Western states where prices climbed the most during the pandemic-driven housing boom. In pandemic boomtown Austin, Texas, home prices have been dropping faster than anywhere else in the country, including San Francisco, which has been hit hard by the post-pandemic shrinking of the market.

In April, home prices in Austin dropped by 9.98 percent year-on-year, according to Zillow. San Francisco followed suit, with a plunge in home prices of 9.92 percent year-on-year.

Not far off is another Californian city, San Jose, where home prices in April dropped by 9.46 percent. In Seattle, Washington, home prices dropped by 7.53 percent in the same month compared to the year prior, while in Sacramento, California, they plunged by 6.85 percent.

In the same period, home prices dropped by 5.78 and 5.63 percent in Phoenix, Arizona, and Las Vegas, Nevada, respectively.

But it's not all doom and gloom for what have become known as the pandemic boomtowns and other notoriously overvalued cities in the West, especially if we look at the smaller picture.

In five of the cities listed above, the housing markets posted monthly gains, according to Zillow, with San Francisco's home value growing by 1.3 percent in April compared to March.

In San Jose, home value surged by 1.5 percent month-on-month in April, while in Seattle it climbed up by 1.2 percent. The national average price growth in April was 1.0 percent. Home value grew by 0.8 percent in Sacramento, 0.34 percent in Phoenix, and 0.28 percent in Las Vegas.

"These metros are some of the most expensive in the country, and have seen some of the largest declines in home values over the past year as buyers struggled to keep pace with high mortgage costs," Jeff Tucker, Zillow senior economist, told Newsweek.

"However, as the spring sales season warmed up in 2023, so did home price appreciation—even in these five markets. That means their year-over-year home value declines are largely reflecting how much home values fell there in the second half of 2022."

According to Tucker, who has access to Zillow's May data, "all of these areas have seen home value growth on a monthly basis since at least March, and in May, San Jose, Seattle, and San Francisco all posted stronger monthly growth than the national average."

Only Austin was an exception. "Austin was the hottest metro in the country early in the pandemic, before affordability constraints brought appreciation back to earth," Tucker said. "Buyers are pushing forward despite affordability challenges, and in all except Austin, inventory is extremely low compared to pre-pandemic norms."

He added: "Low inventory is a big reason prices are beginning to climb again. Homeowners are largely opting to hold onto their current mortgage with a rate around 3 percent rather than trade that in for a new home with a much higher interest rate now. Demand is lower than it's been for much of the pandemic, but there are still more buyers than sellers, which means competition for each home on the market."

Update 6/8/23, 2:40 a.m. ET: This article was update to include a comment from Zillow.