Last month, AEI Housing Center reported that the housing market has reached the turning point on the national level, with certain markets, primarily out West, leading the decline. What separates these declining markets from the rest? AEI Housing Center’s latest 60-metro Home Price Appreciation (HPA) data reveal a strong indicator: as this market turns, the highest priced markets tend to be the first ones with declining prices.

In California, the nation’s least affordable state, as of July 2022 home prices in all large metros are either below (4 metros) or at peak prices (2 metros). Among them, San Jose (-3.9%) and San Francisco (-1.3%) had the largest price declines on a month-over-month basis. These are also the nation’s two most expensive metros, with median home price at $1.28M and $1.15M, respectively.

On the other hand, none of the eight metros in the Sunshine State has peaked yet. Despite seeing the most exuberant home price growth during the pandemic, the Florida metros remain relatively affordable. For example, median home price in Florida’s most expensive metro, North Port was $410,000 in July 2022, less than a third of the median price in San Jose.

The same rule applies to the other parts of the country. In Texas, prices have peaked in Austin, the most expensive metro among the state’s pandemic boomtowns, but not in the other three. In the East Coast, prices have peaked in Boston but not in Providence, a market only one hour south of Boston but 40% lower priced. In the West, prices have peaked in Seattle and Portland but not in the more affordable Boise City and Salt Lake City.

There is one exception: New York. It is the only metro among the five most expensive markets that has rising prices, and at a healthy rate of 1.2% month-over-month. The likely explanation is that New York was one of the least heated market during the pandemic – home prices in New York have risen only a modest 28% compared to the national average of 39%.

What these early data tell us is that at the market turning point, affordability is the key test on the sustainability of home prices. This is indicated by the inverse relationship between the month-over-month HPA and the median sale price among the largest 60 metros shown in the chart above.

In the coming months, we expect more metros to lose steam as rate hikes continue to slow demand leading to increases in months of inventory at the current selling rate. Stay tuned as we continue tracking the housing market in near real time.

Note: data featured in this post may be found at AEI’s monthly update of Home Prices and Supply.

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