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Housing Market Shows Cracks With Price Cuts in Pandemic Boomtowns

No city exemplifies the mania of the pandemic U.S. housing market better than Boise, Idaho, where prices have surged by more than 30 percent in the past year. But in a sudden reversal, buyers are now the ones with power. 

Asking prices for houses are being slashed. Bidders no longer have to waive inspections to win over sellers juggling multiple offers. Demand has slowed so much it’s like a light switch suddenly turned off, said Dominic Zimmer, a local Realtor.

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“You’re seeing the fear of missing out switching from buyers to sellers,” Zimmer said. “Now sellers are afraid of not scoring the way they saw their neighbors do a year ago.”

The cracks in one of the nation’s hottest housing markets mark an early sign that the U.S. boom — fueled by low mortgage rates and remote-work moves — is losing intensity. While much of the country is still seeing record price increases and plunging listings, in some destinations builders who could hardly put up homes fast enough now have inventory sitting. 

The slowdown is particularly pronounced in areas away from major urban hubs where buyers were seeking affordability and picturesque havens during the pandemic. That demand has ebbed as people have more reasons to stay put this fall, with the return of in-person school and more companies ordering workers back to the office, or at least requiring them to be somewhere in the vicinity. 

The result: Prices are running up against the reality of local economic fundamentals.

“The markets where we’re seeing the most price cuts were flying a little too close to the sun earlier this year,” said Daryl Fairweather, chief economist for the brokerage Redfin. “Sellers got eager in their asking prices. It was not sustainable and benefited from pandemic trends that still persist, but not as extremely.” 

Across the U.S., home-price appreciation slowed for a second straight month in September as part of a modest cooldown, Zillow Group Inc. reported this week. The number of homes with price cuts is growing, with counties near Denver, Salt Lake City and Indianapolis seeing more than half of listings get reductions, according to Redfin.  Even some of the hottest areas where workers from large urban cities sprawled out to, such as the counties including Portland, Maine, and Tacoma, Washington, have had cuts on more than 40% of listings, Redfin data show.

In Idaho’s Canyon County, about eight out of 10 listings have had price cuts, the biggest share in the U.S. It’s a popular area for people who can’t afford nearby Boise, a city of about 230,000 that has boomed as Californians and other escapees of high-cost regions spread out. Its biggest employers include Albertsons Cos. and Micron Technology Inc., which are both based there.

Homes started when the market looked unstoppable are getting discounted as they’re completed. A Toll Brothers Inc. house in Nampa with a gourmet kitchen and dual-sink vanity in the master bathroom is on sale for $575,000, down $44,000 since it was listed at the end of June. CBH Homes, the most prolific builder in Idaho, has 99 Canyon County homes with active listings on Realtor.com — and 52 have price reductions. 

Toll Brothers declined to comment. CBH builds homes on spec — without a buyer in place — so it always has 100 to 200 houses available at any given time, said CeCe Cheney, a spokeswoman for the company. “In regards to pricing, as the market changes, our pricing must change with it,” she said. 

Zimmer, an agent with Amherst Madison Real Estate in Boise, said he didn’t have a single buyer succeed in winning a below-asking-price bid until August. That’s when John Blake, deputy chief of Ada County Paramedics, decided to jump into the fray. He was able to win a two-bedroom house for $327,000, below the $349,900 asking price. There were no other bidders. 

“I looked at a number of homes that were outrageously priced for what they were,” Blake said. While he’s thrilled to get the house, he worries he might have purchased near the top of the market. 

The pullback is a sign of prices getting too far ahead of what locals can pay, said Rick Palacios, director of research at the John Burns real estate consultancy. In the third quarter, 75 percent of U.S. counties had median-priced single-family homes that were less affordable than historic averages, according to real estate data firm Attom. That’s the highest share in 13 years.

Canyon County was the least affordable relative to its average wages and housing costs in the past, based on an Attom analysis of more than 300 counties with a population of at least 200,000 people. Boise’s home of Ada County ranked second.

“You’re transitioning from every market under the sun going nuts to now starting to see where long-term fundamentals actually matter,” Palacios said.To be sure, Boise sellers don’t have much to worry about because most are sitting on a mountain of equity. And even as asking prices are being cut, the drops would have to be steep to fall below year-ago levels.

In some ways, a slowdown should be expected. It’s the comeback of seasonality that skipped over 2020, said Julie Russell, an agent with Coldwell Banker in Farmington, Utah, 20 minutes north of Salt Lake City.

In December, Russell listed a home that got 23 offers within 24 hours. But she put two houses on the market in the last two weeks and had to cut prices on both.

Buyers have lost some urgency now that mortgage rates are starting to rise, she said.

“It’s still better than it was two years ago,” Russell said. “It just feels so dramatic because we had so many offers, sometimes sight unseen, and now we’re returning to a sense of normalcy.”

The boom remains strong in many Sun Belt havens such as Phoenix and Austin, Texas, where jobs are growing fast. But in Pasco County, Florida, a relatively affordable coastal area about 45 minutes north of Tampa, sellers can no longer shoot for the moon, said Gerard Buglione, an agent with Charles Rutenberg Realty.

He’s working with a family that moved from New Jersey during the height of the boom in April. They beat out multiple bidders and paid $270,000 for a four-bedroom house with an open floor plan on a cul-de-sac.

They didn’t like Florida and now want to move back. They sought a big profit, listing the home for $369,900 in early September. The price has come down by $20,000 since then. A neighbor just sold a house with the same floor plan for $10,000 less than that.

“A lot of buyers have gotten frustrated and put purchasing on the back burner,” Buglione said. “Prices are leveling out.”

More stories like this are available on bloomberg.com.

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