Earlier this month, the real estate research team at Zillow published a report that showed U.S. home prices dropped from March to April 2019. That was the first month-over-month drop in home values since February of 2012.
According to the company’s data, a typical home in the U.S. now costs around $226,800. That was the median value, nationwide, at the time this report was published. (Of course, some real estate markets are much more expensive than that.)
As of summer 2019, home prices in many housing markets across the country are now slowing, leveling off, or even dropping.
Home Prices Have ‘Likely Peaked’ in These Cities
The report also stated that house values in 14 real estate markets across the country — including Philadelphia, Boston, San Francisco and Seattle — have already reached their price peaks.
According to the press release that announced these findings:
“Home values have likely peaked in Los Angeles, Philadelphia, Houston, Miami, Boston, San Francisco, Seattle, San Diego, St. Louis, Tampa, Baltimore, Pittsburgh, Portland and San Jose.”
It’s not surprising to see some of these cities singled out in the report. Back in March, we mentioned that home prices in Seattle appeared to be coming down from a peak. And Seattle was one of the cities mentioned in the Zillow report.
In fact, cooling trends can be seen in many of the other housing markets on this list. A couple of examples: Following a year of steady gains, home prices in Philadelphia have pumped the brakes. The median house value in San Jose, California (another city on the list above) has dropped as well.
A Closer Look at These Housing Markets
We looked at some of the major cities where Zillow said home prices had peaked, to get a better sense of what is happening in those housing markets. Here are some highlights:
Houston, Texas
According to a recent report, most of the homes listed for sale in Houston end up selling below their original list prices. This shows how much the local housing market has cooled, since its red-hot days a few years ago. Home-price growth in the area has slowed down as well.
But it might be a bit premature to say that the Houston housing market has peaked. Current conditions will likely produce smaller home-price gains in 2020, compared to the past couple of years. But significant population growth in this metro area could put upward pressure on house values well into next year.
Los Angeles, California
Following a year of modest growth, home prices within the Los Angeles real estate market have screeched to a halt. According to a May 2019 update from Zillow: “Los Angeles home values have gone up 2.2% over the past year and Zillow predicts they will fall -0.1% within the next year.”
Similar cooling trends can be seen in other parts of Southern California. In this part of the country, housing affordability is a major contributing factors.
In many of these California real estate markets — particularly the major coastal cities — a person earning an average income for the area can scarcely afford to buy a median-priced home. This has reduced housing demand and, in turn, led to smaller price gains.
Miami, Florida
According to an April 2019 report from Knock (the home trade-in company), Miami’s housing market had the highest percentage of homes sold below the original listing price during Q1 2019. At that time, “88% of homes sold below original list prices,” the report said.
This is just one indicator that suggests the Miami real estate market is cooling — and starting to favor buyers over sellers. Home prices in the area are expected to level off between now and 2020.
Inventory has a lot to do with this. The Miami housing market currently has more supply (homes listed for sale) than most other major cities across the country. This gives buyers more options to choose from, but it also takes some of the steam out of home-price appreciation.
Portland, Oregon
Portland was one of the western housing markets that appreciated rapidly after the recession. Limited inventory and strong demand drove home prices up at a rapid pace.
But a lot has changed since then. Portland was also one of the first western real estate markets to go through a cooling phase, which you can see clearly in the chart below.
House values in this market began to level off in 2017, and the median home price has actually declined a bit since then. So it’s safe to say that the Portland housing market has already peaked — at least in terms of pricing.
San Diego, California
As a former resident, I can tell you that San Diego is a nice place to live. The weather’s great almost year-round, and there’s plenty to see and do. That’s why the city’s population continues to grow at a steady pace.
But the San Diego real estate market is expensive, and it has only gotten pricier over the past few years.
Consider the evidence: The median home value in San Diego rose from around $370,000 in 2012 to $633,000 in 2019. As a result, there are fewer home buyers with the means to make a purchase. And this had led to a slowdown in price growth. So it’s no surprise to see the San Diego mentioned among the housing markets that have “likely peaked.”
San Francisco, California
Will one of the nation’s most expensive real estate markets actually depreciate between now and 2020? It seems possible.
After years of steady home-price gains, the San Francisco housing market has cooled down. Some forecasters are now predicting that house values in the city will level off, or even drop a bit, over the next year.
But don’t let that fool you. The San Francisco real estate market is still highly competitive right now. (Is it ever not?) Properties in the city are selling fast, due to limited inventory and steady demand from buyers.
San Jose, California
What can we say about San Jose? This real estate market is an anomaly in more ways than one. Here’s the short version: Tech workers have flocked to the Silicon Valley for high-paying jobs at places like Apple, Facebook and Google. And home prices in the area have skyrocketed as a result.
A lot of residents outside the tech industry, however, have been priced out of the housing market. For instance, a recent report from Trulia showed that San Jose is the toughest market in the US for educators.
Over the past few years, inventory shortages within the San Jose real estate market led to bidding wars and offers well above the asking price. The city’s median home value shot up to $1.1 million in October 2018.
But prices can only rise so far before buyers start to pull back. And that’s exactly what is happening in San Jose and surrounding areas. Home prices there are now falling, as inventory accumulates. It seems that the bubble has burst.
Seattle, Washington
The housing market in Seattle suffered from a severe inventory shortage from 2015 to 2017, one of the worst in the country. And while inventory has increased since then, it’s still pretty tight.
This supply shortage — combined with strong demand from investors — sent prices soaring. Seattle’s median home value shot up from a fairly affordable $350,000 in 2011, to a whopping $750,000 in 2018. As you might have guessed, this has led to affordability issues for a large segment of the populace.
A predictable pattern followed: Buyers pulled back, and this drop in demand had a cooling effect on house values. The median home price in Seattle has dropped over the past few months, and the team at Zillow predicts a continuation of this downward trend into 2020.
Tampa, Florida
The Tampa real estate market has also seen an increase in the number of homes selling below the original list price. According to the Knock report mentioned earlier, about 78% of properties sold during the first quarter of 2019 went for less than the list price.
The Tampa housing market is also experiencing much slower price growth today, compared to recent years. Following a gain of 5.5% over the past 12 months, Zillow predicts the median home value for Tampa “will rise 1.6% within the next year” (into May 2020).
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