According to national property broker Redfin, tech heavy U.S. housing markets and pandemic migration hotspots nationwide are cooling more rapidly than other parts of the U.S as the tech sector falters and mortgage rates remain elevated.
Austin, TX cooled fastest over the last year as the U.S. housing market descended from its pandemic-era boom. The Fed started hiking interest rates to combat inflation--leading to an increase in mortgage rates--one year ago. Austin is followed by Seattle, Phoenix, Tacoma, WA and Denver. Las Vegas, Stockton, CA, San Jose, CA, Sacramento, CA and Oakland, CA round out the top 10.
Measures of homebuying demand and competition dropped off quickly in tech centers including Seattle, San Jose and Oakland. The typical San Jose home sold for just 0.6% above its asking price in February, compared with 12% above asking price a year earlier--the biggest percentage-point drop-off in the U.S. Seattle had the third-biggest drop-off, going from 8% above asking price to 1% below during the last year. Pending home sales declined 40% year over year in Seattle, and they were down 38% in San Jose.
Housing markets in tech hubs are cooling because tech stocks fell more than 30% in 2022, though they have ticked up a bit since then. Shaky tech stocks hit the Bay Area and Seattle hard because buyers employed in the tech industry often use stock proceeds for down payments. Tech layoffs. Low inventory. Home prices in tech hubs rose quickly for many years, especially during the pandemic, pricing out residents who didn't work at Google, Meta, Amazon, Microsoft or another tech company. Now that tech is struggling and mortgage rates are high, an even bigger portion of local residents are unable to afford homes.
Mortgage rates are sitting around 6.4%, more than double the record low of ~3% that was common in late 2020 and early 2021. That has driven up monthly housing payments substantially in expensive markets. Home prices are falling in the Bay Area and Seattle, but they're still high, largely because of limited inventory. The collapse of Silicon Valley Bank, which lent money to a lot of Bay Area startups, is having a mixed impact on the local housing market.
Austin soared in popularity in 2021 and early 2022 as an influx of out-of-town remote workers moved in from expensive coastal areas, taking advantage of historically low mortgage rates. The surge of affluent homebuyers pushed up local home prices, and the subsequent rise in mortgage rates priced out even more local residents. Even though Austin's median price per square foot fell 13% year over year in February, the biggest drop of any major U.S. metro, it's still higher than it was two years ago and the income needed to buy a home there remains far higher than what the typical local earns.
The increasing portion of home sellers dropping their asking price illustrates just how much some of these markets have cooled. In Phoenix, 70% of for-sale homes had a price drop in February, compared with 21% a year earlier--the second-biggest uptick in the U.S. It's followed closely by Denver, where 37% of homes had a price drop in February, compared with 13% a year earlier. Las Vegas and Phoenix are also among the places that have seen the biggest upticks in sellers offering concessions to woo buyers over the last year.
