The national experiment with remote work during the pandemic spawned boomtowns and new hopes for the spread of tech jobs into the nation’s heartland. Fueled by migration to the state from other parts of the country, Austin, Texas, for example, soared in popularity in 2021 and early 2022. An influx of out-of-town remote workers moved in from expensive coastal areas, taking advantage of historically low mortgage rates. But now, measures of home buying competition and demand in Austin are dropping off fast.
A Redfin analysis found that Austin cooled the fastest over the last year. The city’s total supply of for-sale homes rose 140% year over year in February, the second-biggest increase in the U.S. Only North Port, Florida had a bigger increase. Pending sales dropped 40%, and just 16% of homes went under contract within two weeks of hitting the market in February, down from 38% a year earlier.
The upswing in wealthy home buyers pushed up local home prices, and the ensuing rise in mortgage rates priced out even more local residents. Although Austin’s median price per square foot declined 13% year over year in February, the biggest drop of any major metro, it’s still higher than it was two years ago and the income needed to buy a home there remains much more than what the typical local earns.
Austin is followed by Seattle; Phoenix; Tacoma, Washington; and Denver. Las Vegas, Stockton, California; San Jose, California; Sacramento and Oakland, California round out the top 10.
The newfound ability of many workers to work remotely inspired them to leave expensive areas for more affordable homes and sunnier weather. Phoenix, Las Vegas and Sacramento quickly went from relatively affordable to not-so-affordable—at least for existing residents—during the pandemic.
Job losses in tech hubs, a housing supply shortage and elevated mortgage rates dampen demand on the West Coast
Signs of a cooling housing market accelerated in tech centers, including Seattle, San Jose and Oakland. In February, over 98 listings in San Jose were sold below the listed price and 29 listings were sold for the listed price. Seattle had the third-biggest drop off, going from 8% above asking price to 1% below during the last year. Pending home sales declined 40% year over year in Seattle, and they were down 38% in San Jose.
Redfin asked its agents to share how big a role the surge in tech layoffs, the shaky stock market and banking turmoil are playing in the cooldown. Some reported that layoffs and precarious tech stocks are deterring buyers. Others attribute the slowdown mainly to other factors, including super-low inventory. San Jose and Oakland are among the five U.S. metros where new listings are dropping off fastest.
Housing markets in tech hubs are cooling quickly. Here’s why
- Tech stocks fell from glory in 2022—more than 30%. Tech stocks have knocked the wind out of the Bay Area and Seattle because buyers employed in the tech industry often use stock proceeds for down payments.
- Tech companies have been laying workers off by the thousands. Shelley Rocha, a Redfin manager in the Bay Area, said some buyers have bowed out of their search or canceled contracts because they have lost their jobs or are worried about losing them. Other agents say layoffs and dwindling tech job prospects are preventing some first-time buyers from entering the market at all.
- Tech layoffs have become a fact of life over the last year, but there are plenty of Bay Area and Seattle residents who aren’t put off by the prospect of layoffs and a rocky stock market. But the limited number of homes coming on the market is tamping down demand from them, too. Shelley Rocha, a Redfin manager in the Bay Area, said some buyers have bowed out of their search or canceled contracts because they’ve lost their job or are worried about losing it. Other agents say layoffs and dwindling tech job prospects are preventing some first-time buyers from entering the market at all.
- Austin and Phoenix are both places where home prices soared during the pandemic-era home-buying frenzy as remote workers flocked from expensive coastal cities to more affordable Sun Belt destinations. Home prices in tech hubs rose quickly for many years, especially during the pandemic, pricing out residents who didn’t work at Google, Meta, Amazon, Microsoft or any other tech company. Now that tech is struggling and mortgage rates are high, an even bigger portion of local residents are unable to afford homes.
- Mortgage rates are hovering around 6.4%. Is this a good thing? No, because it’s more than double the record low of 3% that was common in late 2020 and early 2021. That has driven up monthly housing payments substantially in expensive markets. The typical Seattle home buyer pays $4,210 per month with today’s 6.4% rate, versus around $3,200 a year ago at a 3.5% rate.
- Home prices are falling in the Bay Area and Seattle, but they’re still high, largely because of limited inventory. The typical San Jose and Seattle homes sell for $1,250,000 and $710,000, respectively, compared with the $386,000 national median. High mortgage rates are exacerbating the expense, pushing out many would-be buyers.
Some Redfin agents are now noticing competition on fairly priced homes as mortgage rates decline from their peak and supply remains low. “I’m seeing bidding wars on homes that are priced fairly and accurately, and the overall market looks strong this week,” said San Jose Redfin agent Laxmi Penupothula. “Overpriced listings are the ones sitting on the market.”
The collapse of Silicon Valley Bank, which lent money to a lot of Bay Area startups, is having a mixed impact on the local housing market (the bank collapsed in March, after the time frame of the data in this report). Redfin agents report that uncertainty around the stability of the banking and tech industries is exacerbating nerves in some buyers and sellers. But the bank’s failure—along with turmoil surrounding other banks—caused the Fed to raise interest rates only modestly last week, which has already brought mortgage rates down and could help bring some buyers back.
The New York metro area (ranked #66 in terms of markets cooling fastest) is also likely to feel the impact of banking turmoil because so many of its residents work in the financial sector. Nearly one in five finance jobs in the U.S. are in New York, and finance is the highest-paying industry in the city. Banking instability could dampen home buying demand in the area as finance workers worry about their industry.
Growth in home prices is slowing fastest in pandemic boomtowns
Phoenix, Las Vegas and Sacramento have been magnets for remote workers leaving expensive areas for more affordable homes and sunnier weather. The cities are mainstays on Redfin’s list of most popular migration destinations and quickly went from relatively affordable to not-so-affordable—at least for existing residents—during the pandemic.
Now housing markets in those boomtowns are doing an about-face as rates rise. Tech troubles are also contributing to dampened demand in these areas because many remote workers are struggling with layoffs and the prospect of them. The Bay Area and/or Seattle are among the top origins for homebuyers moving to Austin, Phoenix, Las Vegas and Sacramento.
The increasing portion of home sellers dropping their asking price illustrates just how much some of these markets have cooled. In Phoenix, 70% of for-sale homes had a price drop in February, compared with 21% a year earlier—the second-biggest uptick in the country. It’s followed closely by Denver, where 37% of homes had a price drop in February, compared with 13% a year earlier.
Las Vegas and Phoenix are also among the places that have seen the biggest upticks in sellers offering concessions to woo buyers over the last year.
Parts of Connecticut, upstate New York and the Midwest are holding steady
Hartford, Connecticut is holding up relatively well, according to the survey. The housing market there isn’t necessarily hot—pending sales dropped 16% year over year in February and new listings also dropped by double digits—but other metrics show that there’s still competition for homes. Among the homes that are selling, more are going under contract within two weeks than a year earlier and the median price per square foot is up 8%.
Next comes Milwaukee, followed by two other Connecticut metros and two upstate New York metros: New Haven, Bridgeport, Albany and Rochester. Lake County, Illinois; McAllen, Texas; Wilmington, Delaware; and Chicago round out the top 10.
Homes in all those places are reasonably priced. Nine of the 10 have a median sale price below the national median. Bridgeport is the exception. That means the uptick in mortgage rates doesn’t make as big of a dollar difference in monthly housing payments as it does in expensive areas.