Declining Home Prices Mapped: 224 Cities with Falling Prices

Worried about declining home prices as a property owner? Or maybe excited about a fall in house prices as a real estate investor or homebuyer?

Either way, the housing market looks far different today than it did even six months ago. Gone are the wild 50+% price jumps we saw during the pandemic. Real estate markets are coming back down to earth — and that’s not a bad thing. (Unless you’re a seller. Then it sucks.)

Keep your finger on the pulse of real estate markets and housing corrections nationwide as you navigate investing in this infinitely weird economy. 

Cities with Dropping Home Prices

If a picture is worth a thousand words, how much is an interactive map worth? 

Of the roughly 900 U.S. cities tracked by Zillow, 224 of them saw a fall in house prices in the first quarter of 2023. That’s actually an improvement over the fourth quarter of 2022, when 253 cities had falling real estate values. 

Without further ado, the U.S. cities seeing quarterly home value declines are:

Most of these cities still boast higher real estate values today than they did a year ago. But some over-ebullient housing markets are correcting to more sustainable levels.

295 Cities Saw Prices Fall Monthly

When you look at last month’s median home price change — as opposed to the quarterly change — the number of cities with dropping home prices increases to 295:

That said, in the previous quarter nearly a hundred more cities (384) had seen monthly price declines. It appears home prices are stabilizing in more markets than not.

Some of those home price declines seem small, under 1%. But remember that a monthly decline translates to a hefty annual price drop — a 1% monthly drop means a 12% annualized decrease in property values.

Melanie Allen from Partners in FIRE has a front-row seat this housing correction. “I live in Austin, and have been searching for a home since moving here in April 2022. At that time, even small condos under 800 square feet were selling for $300,000, and I didn’t see any single-family homes available for less than $400,000, even in the smaller towns surrounding Austin.

“I started noticing a change last fall. I saw deep price cuts on numerous homes, the small condos are now selling for between $250,000 and $300,000 and I even found some builders in the outskirts offering single-family starter homes for under $300,000. I’m currently under contract for a home about 20 miles northeast of Austin, a deal I never would have found when I first started house hunting.”

Why the Fall in House Prices?

Don’t get me wrong, I don’t expect a housing market crash and neither do most economists. Home prices in most US cities are still up sharply year-over-year, albeit less sharply than they were six months ago.

Still, over 250 of the formerly hottest housing markets in the pandemic are now falling back down to earth. It doesn’t take a senior economist to understand that they shot up too far, too fast, and now they’re correcting back to what local incomes can support.

“Monetary stimulus during COVID distorted the real estate market,” explains Andrew Lokenauth, founder of Fluent in Finance. “Interest rates were at historic lows. Now with monetary stimulus being withdrawn, home prices will gradually decline. Areas that saw the greatest speculation and increase in prices will see the greatest decrease in prices. Areas that saw moderate price increases will see prices flatten out or decrease slightly.”

What the #%& are real estate syndications, and do they really earn 15-30% returns?

Because, ultimately, people have to be able to afford their homes. When housing prices stray too far from local median incomes, expect real estate prices to drop. Mark Zandi, the chief economist for Moody’s Analytics, warned that 97% of the nation’s cities are “overvalued” compared to local incomes. Of the 392 markets they analyzed, 149 are overvalued by at least 25%. Zandi expects the most overpriced housing markets to fall as much as 10% over the next year.

But a disconnect from local fundamentals isn’t the only reason median prices are dipping in some markets.

The Role of Rising Interest Rates

When the Federal Reserve raises interest rates, it puts upward pressure on mortgage rates. That, in turn, drives up the cost to own real estate in the form of higher monthly payments for the same loan amount.

Which means people just can’t afford to pay as much for properties.

Mortgage interest rates started 2022 at around 3%, then shot up over 7% by November. Mortgage rates closed the year around 6.5%, marking a huge leap in monthly costs for homebuyers and real estate investors alike. Consider that a 30-year $400,000 loan at 3% interest costs $1,686 per month, while the same loan at 6% costs $2,398. Interest alone added over $700 to the monthly mortgage payment!

At a 6% interest rate, a family could only borrow around $280,000 if they wanted a similar monthly payment ($1,679). So, rising interest rates force buyers to either pay cash, offer less, look at cheaper homes, or sit on the sidelines and continue renting.

None of which push up property prices. Quite the opposite, in fact. 

Real Estate Prices to Drop Further?

In many markets, house price growth will likely just slow down and level off. High borrowing costs will continue suppressing demand for homes, and driving a drop in prices in some markets.

But in the cities where home prices skyrocketed by 40​​–50% annually during the pandemic? Those are likely headed downward, between 5–20%. They overshot what local prospective buyers can afford, and now comes the correction.

Remote work plays a role as well, in multiple ways. Some people (like me!) will never work in a traditional office again. “With the workforce moving increasingly towards hybrid and remote workplaces, many people are moving out of cities and into less dense areas, investing in more rural real estate,” explains Matt Woods, CEO of SOLD.com.

But the reversal of remote work is also at play. Plenty of employees are heading back to the office, which means that all those beach and mountain getaways where people holed up during the pandemic might surrender some of their price gains.

Underlying these population movements, the US still has a housing shortage, and it’s not evenly distributed. Don’t expect home prices to crash 20​​–35% as they did after the housing bubble of the Great Recession.

(article continues below)

Want to compare investment property loans?

What short-term fix-and-flip loan options are available nowadays?

How about long-term rental property loans?

We compare several buy-and-rehab lenders and several long-term landlord loans on LTV, interest rates, closing costs, income requirements and more.

The (Continued) Housing Shortage

The statistics vary, depending on who you ask. But here are a few to chew on.

Moody’s Analytics estimates the housing shortage in the US at 1.6 million housing units. Mark Zandi put it like this: “It’s very difficult to know precisely what the shortage is. But the bottom line is, no matter what the estimate is, it’s a lot of homes that we’re undersupplied.”

A report by Up for Growth calculated the housing shortage at more than double that figure, at 3.79 million housing units. But that shortage isn’t evenly distributed across the US. Some markets have plenty of housing to meet local demand, while others have nowhere near enough. Check out this map breaking down housing undersupply by state:

Real estate platform Homelight notes that 12.3 million households were formed between January 2012 and June 2021, but only 7 million new housing units were built. That leaves a shortfall of over five million homes. (For more details, check out their breakdown of why the US has a housing shortage.)

Don’t expect housing supply to jump any time soon, either. Housing starts have declined for five consecutive months, entering 2023 near their lowest level since August 2020.

Fret Over the Fall in House Prices?

The US still needs more housing, so don’t expect declining home prices to freefall into a 2008-style housing crash nationwide. Still, some markets saw home prices spike too far, too fast, and are now adjusting back to reality.

One piece of good news? Rents seldom dip, so rental properties are largely recession-proof. Rent growth has slowed, but don’t expect rents to collapse any time soon. In Rentometer’s quarterly rent report, they show 96% of US cities saw rising rents last year, over half (52%) by double digits.

Keep an eye on your home real estate market’s trends. But most of all, watch out for flipping houses right now, and stick with a long-term buy and hold strategy. You can forecast long-term cash flow accurately with a rental income calculator — the same can’t be said for predicting appreciation.♦

Where do you expect real estate prices to drop? Why?

More Real Estate Investing Reads:

About the Author

G. Brian Davis is a real estate investor and cofounder of SparkRental who spends 10 months of the year in South America. His mission: to help 5,000 people reach financial independence with passive income from real estate. If you want to be one of them, join Brian and Deni for a free class on How to Earn 15-30% on Fractional Real Estate Investments.