Hot Housing Markets Like Denver, San Jose and Seattle Are Cooling

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A recent report showed that some of the nation’s hottest housing markets are beginning to slow down. Slower home sales have been reported in housing markets like Denver, Oakland, Seattle and San Jose.

But despite this trend, the latest real estate forecasts suggest that home prices in most of these “cooling” markets will continue to climb in 2019.

Hot Housing Markets Are Slowing Down

Is a cooling trend coming to the U.S. real estate market? In some cities and metro areas, the answer appears to be yes. In fact, cooling trends are being reported for some of the nation’s hottest housing markets, like Denver, San Jose and Seattle.

According to a recent report published by Redfin, a nationwide real estate brokerage, the markets with the fastest home sales during the spring of 2018 are now experiencing a significant slowdown.

The company based its analysis on the speed at which homes sell within a particular area. In some of the hottest and fastest-moving real estate markets (like Seattle and San Jose), the average number of days on market has dropped considerably. This suggests a softening of demand in those areas.

To quote the report:

“…this spring [2018] there were fourteen metro areas around the country where half or more of the homes that were listed for sale between March 5 and April 29 went under contract within two weeks. By mid-September, every single market saw its share of homes selling that quickly fall to below 50 percent, with spring’s fastest markets, namely Seattle and San Jose, California, seeing the largest declines, falling by more than 35 percentage points since spring and over 20 percentage points from a year earlier.”

In other words, homes are staying on the market longer in these and other hot housing markets across the country.

And that’s not surprising, when you consider how much home prices have risen in those areas. In San Jose, for example, the median home value rose by a whopping 19% over the past year according to Zillow. Denver and Seattle (also cited in this report) have also experienced steady price growth over the past few years — though nothing like San Jose.

So perhaps these markets are “topping out” in terms of affordability. It’s a cycle we’ve seen many times in the past. When prices rise to the point that the average resident cannot afford to buy a median-priced home, it leads to a weakening of demand. This in turn takes some of the steam out of home-price appreciation.

Sellers Dropping Their Asking Prices

Price reductions are also becoming more common in the nation’s hottest housing markets, like Denver, Seattle and San Jose. Sellers in these and other areas are realizing there’s not the same level of demand as there was in 2016 or 2017. Homes are staying on the market longer.

“As a result, sellers are having to wait longer for offers, and more sellers are dropping their list price to attract buyers,” said Daryl Fairweather, Redfin’s chief economist.

The table below includes some of the hottest real estate markets in the U.S. For each metro area, it shows the percentage of homes that went “off market” or under contract in two week or less. By comparing the August-to-September columns for 2017 and 2018, we can see which markets appear to be slowing down. These include Seattle, San Jose, Portland, Oakland and (to a lesser extent) Denver.

Percent of Homes that Went Off Market in Two Weeks or Less
Metro Area Aug. 14 –
Sept. 10, 2017
Mar. 5 – Apr. 29,
2018
Aug. 13 –
Sept. 9, 2018
Warren, MI 37% 51% 35%
Tacoma, WA 41% 61% 39%
Seattle, WA 56% 72% 35%
San Jose, CA 58% 66% 31%
San Francisco, CA 45% 54% 40%
Sacramento, CA 38% 50% 32%
Portland, OR 42% 52% 33%
Omaha, NE 42% 59% 47%
Oakland, CA 50% 61% 38%
Grand Rapids, MI 41% 58% 44%
Denver, CO 47% 62% 41%
Cambridge, MA 49% 60% 44%
Boston, MA 39% 52% 38%
Boise, ID 27% 52% 36%

We can also discern from this table that the “cooling” trend is not happening in all of the hot real estate markets. In fact, the percentage of homes that went under contract in two weeks or less actually rose in some metros, from 2017 to 2018. Boise, Omaha and Grand Rapids all fall into that category.

According to Redfin:

“The common factor among the metro areas that are not slowing down: they’re all smaller cities away from the coasts where homes are much more affordable.”

What conclusions can we draw from this? Among other things, these trends suggest that a lack of affordability is possibly the biggest factor that is causing the nation’s previously red-hot markets to cool down.

Related: Forecasts for 35 largest U.S. metros

Forecast: Home Prices Expected to Keep Rising

Despite the slowing sales cited above, hot housing markets like Seattle, San Jose and Denver still tend to favor sellers over buyers. Strong demand and limited inventory will keep these markets highly competitive for the foreseeable future.

The latest forecasts suggest that these metro areas could see smaller home-price gains in 2019, compared to the past couple of years. But prices are expected to continue rising in San Jose, Denver, and nearly every other city in the table above.

The bottom line to all of this: While some of the nation’s hottest housing markets are cooling, they clearly haven’t gone “cold.” Home sales might be slowing, and price growth might be happening at a slower pace than in previous years. But these markets are still very competitive for home buyers.