Expect to see some areas of the housing market cool more than others amid higher mortgage rates and a slowing economy, says one expert.
"In the really overpriced markets, like Tampa, Austin, and West Palm Beach, you're starting to see a lot of price reductions,” Ralph DiBugnara, president of Home Qualified told Yahoo Finance. "A lot of those areas were just very, very overpriced.”
Those areas which saw the biggest price increases during the pandemic are now seeing some of the largest number of price drops, according to Redfin data.
Provo Utah — about 45 miles outside of Salt Lake City — saw 47.8% of its sellers cut their list prices in May.
Tacoma, Wash., Denver, Colo., Sacramento, Calif. and Boise, Idaho, are also areas where more than 40% of listings saw price drops in May.
Seattle, Wash., San Diego, Calif., Houston, Tex., Phoenix, Ariz. and Orlando, Fla., are just a few of the more than 100 metro areas studied by Redfin in which at least 25% of sellers reduced asking prices in May.
The reductions are a sharp reversal from bidding wars and over-asking offers during the pandemic.
“I think by end of summer, early September, you're going to see a 10 -15% reduction in prices. But most of that is going to be based around the prices — the houses that are overpriced," said DiBugnara.
“I think you should be more conscious of buying something,” he said. “I believe that 2021 was a big inflated year - kind of got to a breaking point. I think that a lot of these markets you're going to see prices go back where they were in the 2020 range.”
‘The luxury market is taking the first hit’
Homes with the smallest pool of buyers are experiencing the initial impact of high mortgage rates.
“The luxury market's taking the first hit,” said DiBugnara.“Anything over $700,000, over a million, over 2 million, depending on where the market is — you're seeing those houses be reduced first. Then the other markets will follow.”
Vacation properties are also impacted as demand for those now sit below pre-pandemic levels. The waning appetite for second homes is expected to continue amid increasing concerns of a recession.
“I think that travel will be affected,” said DiBugnara. “In turn, second homes will be affected and vacation homes will be affected. So I do think you'll see more of that stuff coming on the market now, whereas you couldn't get any of those properties [during the pandemic] and now there'll be inventory for those properties.”
DiBugnara also predicts a slowdown in short-term rental homes.
“I have about 15 [short term rental] properties in five states. Most of them are still booked through the summer. What I'm seeing is their future bookings — whereas people who are booking way ahead into September, October, and even for the holidays— those bookings have not been coming the same way they were coming over the last two years," said DiBugnara.
Ines is a markets reporter covering stocks from the floor of the New York Stock Exchange. Follow her on Twitter at @ines_ferre