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Mapping Out 253 Cities With Quarterly Declines In Home Value

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Where are home prices falling? Let’s map out the 253 cities that saw quarterly declines in the final three months of 2022. But there are indications that this isn’t a repeat of the 2008 crash.

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It’s no secret that the second half of 2022 saw a sharp reversal for real estate.

But all real estate is local, and some markets still see home price growth while others free fall. 

So where are properties falling in value and why?

A picture — or in this case an interactive map — is worth a thousand words:

Every month, Zillow tracks the median home price in nearly 900 cities. Of those, 253 saw home prices fall in the fourth quarter of 2022. 

Unfortunately, the news gets worse from there. When you look at monthly price changes in December the number of cities that lost value jumps to 384, suggesting the pace of declines nationwide seems to still be accelerating.

Month over month, the following 384 cities saw falling real estate values to close out 2022:

You can see the bearishness in nationwide housing indexes as well. November marked the fifth straight month of declines in the Case-Shiller index, and all signs point to December following suit. 

Even so, keep the news in perspective. Less than half of the cities measured by Zillow saw a drop in price in December. On an annual basis, home values in most of the U.S. have risen. And despite plenty of headwinds, pending home sales actually ticked up in December

Don’t put a fork in real estate markets just yet. 

Why Are Prices Falling in Some Cities?

During the COVID-19 pandemic’s lockdowns and social distancing, suddenly space mattered and proximity to work didn’t. That reshuffled real estate markets, sending higher earners scrambling to buy properties further afield from where they worked. Sure, suburbs saw a jump in demand, but so did many less-urbanized cities such as Boise. 

Home prices in these “pandemic darling” cities shot through the roof, dislodging from fundamentals like local median income. That’s a classic recipe for a price bubble, and sure enough, a return to in-person work combined with dried-up stimulus money and rising interest rates has sent many of these high-flying cities tumbling back to earth.

Economist Mark Zandi, of Moody’s Analytics, noted that 97 percent of housing markets were “overvalued” in 2022. The worst offenders now face a reckoning as they re-tether to minor details, such as local incomes. 

In other words, expect the cities that saw the greatest spikes in value during the pandemic to fall the hardest. Cities with more modest, sustainable appreciation may not dip in price at all. 

Interest Rates Still Rising

Skyrocketing interest rates have also put a hurting on housing markets. While mortgage rates started 2022 at around 3 percent, they more than doubled to close the year at around 6.5 percent. 

For an average homebuyer that amounts to a monthly payment approximately $700 higher for the same loan amount. You don’t have to be an economist to see why high-interest rates can drive down home prices. 

While some pundits predict that the February rate hike will be their last, the Federal Reserve doesn’t want you to get too comfortable yet. Not a single Fed board member expects a rate cut in 2023

Still, the end is in sight. Jerome Powell states he expects a “couple more rate hikes” in the coming months before suspending them. 

How Low Will Home Values Go?

Fret not: This housing market is not a do-over of 2008.

To begin with, we had a glut of housing in 2008. Today, we have a housing shortage ranging between 1.5 million-3.8 million housing units, depending on which report you read. Fully half of U.S. cities face a housing shortage. 

And even as high-interest rates make buying less affordable that keeps many would-be homebuyers in the rental market. In its most recent quarterly rent report, Rentometer shows that nearly all (96 percent) of U.S. cities saw rents rise over the last year and more than half (52 percent) of cities saw double-digit rent growth. Rising rents can themselves buoy home prices as they change the calculus for renting versus buying affordability. 

So yes, housing markets that shot the moon in the pandemic are correcting right now. Housing markets will continue to normalize and respond to interest rate changes over the next year or two. But Americans still need housing, and for now, at least, there isn’t enough of it. Don’t expect a real estate catastrophe, but rather a correction based on local supply, demand and income fundamentals. 

G. Brian Davis is a real estate geek and co-founder of SparkRental.

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