Home Prices are Dropping. What Does it Mean?

Home Prices are dropping.  What does it mean?

During the week of July 14-21, more that 800 sellers reduced the price they were asking for their home.  In the five zip codes of South Tampa, there were 63 sellers who reduced the price.  The media price drop was 3.28%.  Since the median home price in South Tampa is $500,000, then the median price reduced is close to $16,000.  To put this price reduction in perspective, let’s look at the median home prices for the past three years.

This graph shows the median sales price of homes in South Tampa increased from around $400,000 to over $600,000.  That is more than a 50% increase in 3 years.  So, how does the current reduction of 3.28% look compared to the 50% increase already experienced?

Let’s zoom in and look more closely at the past seven months.

You can see that in jus the past seven months, home prices have continued to increase.  This is extremely interesting because this is also the time that mortgages rates increased from 3% in December to almost 6% in May.  According to this graph, even to get to the median price of homes in February, home prices would have to drop 18%.

A question that has to be answered is, “Why are home prices being reduced?”  To answer this question, let’s look at two more graphs, one shows active listings and the other shows sales per month, over the past three years.

The graph on the left shows how the number of active listings (inventory) decreased dramatically.  Then the law of supply and demand kicked in.  With low inventory and strong buyer demand, prices accelerated.  In the chart to the right, you can see that sales were very strong through 2020 and 2021.  Because of the competition for homes, buyers were willing to pay over asking price, waive inspections, waive appraisal contingencies, etc.  Buyers were chasing the market, and this helped push prices higher.

In 2022, the Fed raised interest rates and mortgage rates began to rise and this impacted buyer’s affordability.  For example, if a family had a monthly budget of $2400 for mortgage and interest, at a 3%  rate they could afford a mortgage of $530,000.  However, when rates went to 6%, this family could only afford a $400,000 mortgage.  In six months, they lost $130,000 of purchasing power.  This impacted sales, as shown in the graph.

So, how to sellers respond?  They lower the price of the home to attract buyers.  The degree to which they reduce the price of their home depends on the attention their house is getting.  If they reduce the price 3.28% and still do not have interest, they may reduce the price again and again until there is interest.

Tampa is still seeing about 25% of homes receive multiple offers.  That is down from close to 57%, but 25% still signals a competitive market.  Mortgage rates, now around 5.5% are still low when you look historically going back to the early 1970s.   If mortgage rates fall in the futures, homeowners can take advantage of refinancing.

If you are considering selling your home, let’s talk.  I can show you the comparable sales and talk about a pricing strategy.