Despite the fact that rents are now higher in many cities than monthly mortgage payments, the latest report on the health of the housing market offers a dismal picture, showing little sign that home prices are hitting bottom. Prices in January fell 3.1% compared with the same month during the previous year, according to Standard & Poor’s Case-Shiller Index. The index of 20 U.S. cities fell to 140, just a point above its spring 2008 low in the wake of the financial meltdown.
In many cities across America, home affordability has returned to pre-bubble levels, making real estate look like a bargain (see Top 10 cities for home buyers). But aside from big-time investors snatching up properties at lower prices, few people are actually buying amid high unemployment and tighter lending standards. In fact, in cities outside major metros with high foreclosure rates, sellers this Spring will likely cut their asking price -- not once, but twice.
On average, U.S. home sellers will reduce their list prices after about 2.5 months, or 79 days on the market, by 8%, according to a new report by real estate website Trulia.com. After making one reduction, 35% of these sellers will make a second.<!-- more -->
Not every city has been enduring the long slog, however. Sellers in America’s 50 largest cities have been more aggressive and quicker to make the first price reduction than the rest of the country, according to Trulia’s analysis of non-foreclosure listings of residential properties between March 2010 and 2011. Minneapolis, MN led as the state quickest to slash prices at an average of 45 days, followed by major cities in California such as Oakland and Sacramento ranging from 49 to 53 days.
Tara Nicholle-Nelson, Trulia's residential real-estate expert, says the difference in urban areas has less to do with demand than with negotiating tactics. Urban sellers may be more aware that they need to negotiate downward than suburban and rural homeowners and may be able to afford to put the certainty of sale over money. These cities tend to discount their listings by slightly less than the national average at 7% and have a higher probability, 42%, of reducing their listing price again.
Given Trulia’s micro-look at real-estate trends, it’s hard to find the basis for the most bullish arguments in the housing industry. With inflation relatively low and unemployment, although improving, at a high 8.8%, the report confirms prices will likely drop further this year. But it’s anyone’s guess as to how much, as economists have estimated declines of anywhere from another 15%, 20% or 25%.
If you’re a buyer or seller, here’s what to expect this spring:
Detroit, with an average discount of 19%, led with the nation’s deepest price cuts during the initial listing, followed by other foreclosure hotspots including Miami, FL with 11%, Columbus, OH with 11%, Baltimore, MD with 10%, and Atlanta, GA with 9%. Since these areas are already gravely depressed, the deep cuts could likely have long-lasting impacts on future home values.
The cities with sellers who didn’t cut deep enough during the first go-around and will most likely have to cut deeper are Phoenix and Mesa, AZ, Jacksonville, FL, Baltimore, MD and Chicago, IL.
But many parts of the South and the Midwest didn’t see prices peak nearly as high during the housing boom and therefore are least likely to have to reduce prices a second time. They include El Paso, TX, Tulsa, OK and Omaha, NE. And what Trulia calls the most “stubborn” sellers often waiting the longest, 80 days, before cutting the initial listing price, are New York City, followed by El Paso, TX, Charlotte, NC, Cleveland, OH, Raleigh, NC, Louisville, KY, Kansas City, MO and Memphis, TN ranging from 70 to 79 days.
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