After several years of escalating home prices amid tight inventory, as well as high interest rates that slammed the brakes on homebuying and investing, the first few dominoes appear to have fallen as prices in some cities nationwide have started to tumble. Is this a blip or the start of a larger trend?

15 U.S. Markets Have Recorded a Drop in Home Values

According to a recent report by the National Association of Realtors, 7% of U.S. housing markets experienced declines in value in the first quarter of 2024. But before you check your credit score and call your mortgage broker, let’s put this in perspective: These markets represent 15 out of 221 surveyed, so talk of a national price thawing might be premature. 

“Astonishingly, greater than 90% of the country’s metro areas experienced home price growth despite facing the highest mortgage rates in two decades,” NAR chief economist Lawrence Yun said in the report. “In the current market, rising prices are the direct result of insufficient housing supply not meeting the full demand.”

The 15 markets showing a slide in values are:

Metro Area Year-Over-Year Change in Home Prices
Elmira, New York -15.1%
San Antonio-New Braunfels, Texas -4.6%
Cape Coral-Fort Myers, Florida -4.4%
Panama City, Florida -3.8%
Boulder, Colorado -1.7%
Salem, Oregon -1.7%
South Bend-Mishawaka, Indiana-Michigan -1.6%
Logan, Utah-Idaho -1.3%
Baton Rouge, Louisiana -1.1%
Peoria, Illinois -1.1%
Shreveport-Bossier City, Louisiana -0.9%
Myrtle Beach-Conway-North Myrtle Beach, South Carolina-North Carolina -0.6%
Austin-Round Rock, Texas -0.3%
Crestview-Fort Walton Beach-Destin, Florida -0.2%
Little Rock-North Little Rock-Conway, Arkansas -0.1%

Why Have Home Prices Dropped in These Markets?

According to Redfin data, Elmira in upstate New York, on the border with Pennsylvania, is highly affordable, with a median house price of $90,213 as of April 2024. However, the local Realtors Association states that the average home price is $146,000 as of the first quarter, with sales dropping 10% year over year. This compares to a national median home price of $393,500.

Nearly 30% of all metro areas saw double-digit price increases during the first quarter of 2024. Drilling down to Elmira, however, the Elmira-Corning Realtors Association shed some light on the issue, with recent data showing that the number of homes sold in the area last year was down by 20.5% compared to 2022. The number of homes sold in December 2023 was down 31.4% compared to the previous December.

A Tipping Point

The main reason for the decline is that despite its modest prices, Elmira—the city and county seat of Chemung County—like most of the markets on the declining list, has experienced unsustainable sales price growth. It increased by 17.8% in November 2022 over 2020 numbers and more modest growth after that as interest rates rose until it appeared to have reached a tipping point, with no break-in rates on the horizon.

The same pattern appears true for other cities, such as Cape Coral, Florida, having experienced a surge in housing supply of up to 50%, which has loosened the market and caused prices to plunge.

What Do Falling Prices Mean for Investors?

Falling home prices could point to a window of opportunity for investors. Where the drops have been substantial, such as in Elmira, gauging how far prices are likely to fall and timing any purchase before a decrease in interest rates could allow investors to make out before prices rise again. 

However, simply buying real estate that has dropped in price to its normal levels is one thing, but ensuring you have tenants to fill a rental unit once it has been purchased and fixed up is another. This is where some research comes in. 

If you’re looking to live and work in Elmira, for instance, your employment opportunities might be limited. However, Elmira was selected as the winner of the $10 million Downtown Revitalization Initiative in the Southern Tier and is strategically located between major commercial corridors. In addition, the downtown area is active and walkable, and the healthcare industry there has been growing, with plans for some significant development and new housing.

Elmira College is also a local attraction. Plans for a trendy brewery-style bar with a large gaming area called Centertown Social are in the works, bringing people to the downtown area year-round. New restaurants, a juice bar, and a jazz club are also in the works. 

Given the low barrier to entry, price-wise, for opportunistic investors, small cities like Elmira could be a feasible way to buy income-producing real estate at the start of an urban renewal cycle. However, it must be stressed that jumping on board a small, down-on-its-heels city at the start of a revitalization project is a high-risk, high-reward scenario. Elmira has long had a reputation for crime and a lack of employment. A turnaround is by no means guaranteed.

Opportunities for Flippers

Low inventory and increasing home prices have seen intrepid flippers who have found deals turn a tidy profit recently despite soaring mortgage rates. Despite the drop in flips overall nationally, those who have stayed in the game have benefited from a “strong sales environment,” according to the new Burns, Sundae, and Kiavi Fix and Flip Survey, as reported by national real estate data company CoStar.

“Low inventory is creating the current frenzy,” a Seattle flipper said in the survey. “Once rates drop, it’s going to be bonkers,” with more demand for flipped homes. 

Now that home prices in some markets are starting to fall, flippers who are confident of a rebound once interest rates drop can plan their flips accordingly, finishing projects to coincide with the widely anticipated slew of Federal Reserve rate cuts. 

Final Thoughts

Low inventory around much of the country means that it’s unlikely that we’ll see home prices crash despite high interest rates. Beleaguered buyers, priced out of the market, face the prospect of even higher prices when rates come down. 

However, in areas where the market has, in effect, said “enough is enough,” and home prices have started to fall, there are windows of opportunity for investors. The great unknown, of course, is interest rates. It’s not worth losing money in negative cash flow every month or taking on a risky flip, banking on rising prices if you are not in a financially strong position to weather the storm. 

For those who are in a good position, however, and can play the real estate long game, temporary pockets of falling prices present an undeniable opportunity—one that still needs to be thoroughly vetted through analysis of a potential market.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.




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