We recently compiled a list of the 25 Cities Where Home Prices Are Falling Most Now and in this article we will talk about a major US market where sky-high home prices are finally falling.

Real Estate in the US: An Overview

According to a market report by Zillow, the US national home value was recorded at $359,402 in March, up 4.4% year-over-year. The typical monthly mortgage payment of $1,908 has also increased by 11.6% since 2023. Home prices have grown the most in San Jose by 2.9%, in San Francisco by 2.4%, in Seattle by 2.1%, in Milwaukee by 2.1%, and in Buffalo by 1.9%. On the contrary, home values have dropped on a yearly basis in New Orleans by 7%, in Austin by 3.6%, and in San Antonio by 1.8%. You can also take a look at some of the least affordable metros for homebuyers in the US.

Affordability Concerns Persist

On March 8, CNN reported that half of the American renters cannot afford the monthly payment while many have let go of the idea of owning a home. In order to fix the national housing crisis, President Joe Biden seems optimistic about the situation after he announced $10,000 in refundable credit for middle-class homebuyers. It is expected that this initiative will enable 3.5 million buyers to settle in their first home. In addition to this, Biden’s plan includes a one-year tax credit to middle-class families who will be selling their homes priced below the area’s median home price. To lessen the gap between the housing supply and demand in the market, building and renovation of more than 2 million homes might also take place. The aforementioned proposals will aim to solve two major problems that have led to affordability concerns, as mentioned by the President. The first problem pertains to the existing limited supply of houses on the market which can simply not cater to the demand while the second problem is the high mortgage rates. Homeowners who settled in their houses at low mortgage rates during the pandemic feel reluctant to sell their homes right now since they will have to pay a higher mortgage on a new house.

Housing advocates in the US have appreciated Biden’s interest in the prevailing housing affordability problems penetrating the country. However, the above plan is currently battling with some resistance as others in the housing industry are of the opinion that individual tax credits that increase the home demand will further bring the home prices up without solving the issue. Some of the hurdles for new construction in the American housing market have been higher interest rates as well as zoning and other regulations.

In the case of the rental market, the average US rent sits at $1,997 which has raised affordability concerns among renters. As compared to the pre-pandemic period, rents are up by 31.4%. Furthermore, the nation’s rent growth has exceeded the wage growth. Renters need to earn nearly $80,000 to comfortably afford the aforementioned typical rent. The required income for paying rent has climbed 3.7% year-over-year. As of April, the median household has to spend 29.2% of their income on a new rental. The highest annual rent rises have been recorded at 7.7% for Providence, 7% for Louisville, 6.5% for Buffalo, 6.5% for Cleveland, and 6.2% for Hartford. Simultaneously, you can view some of the most affordable cities for US renters.

Home Price Dynamics in the Market

On May 17, The New York Post reported Florida and Texas as the two states that tend to offer better conditions to homebuyers in the US. Recently constructed homes have been listed in these markets thereby adding to their inventories. During the month of April, more homes were on the market in multiple Florida and Texas metros including Austin, San Antonio, Dallas, and Tampa. Although these markets have cooled a bit, they still lag behind the pre-pandemic dynamics. Major cities with the highest home price increases since the pandemic have been previously discussed.

On the other hand, an analysis by the National Association of Realtors revealed that more than 90% of the US metro markets saw home price increases during the first quarter of 2024. 30% of the total tracked metros recorded double-digit price gains during the quarter. The shortage of inventory was cited as the main reason behind the rising prices. While prices went up 3.3% in the South, they also climbed by 11% in the Northeast, 7.4% in the Midwest, and 7.3% in the West on a year-over-year basis. Eight of the top 10 most costly US housing markets were based in California. Some of these Californian markets and their respective price gains were reported to be 13.7% for San Jose-Sunnyvale-Santa Clara, 14.2% for Anaheim-Santa Ana-Irvine, 14% for San Francisco-Oakland-Hayward, 11.5% for San Diego-Carlsbad, 7% for San Luis Obispo-Paso Robles, 7.6% for Oxnard-Thousand Oaks-Ventura, 4.1% for Salinas, and 10.2% for Los Angeles-Long Beach-Glendale.

Real Estate Options to Pursue

Amidst the national affordability crisis, reputable American homebuilders such as Lennar Corporation (NYSE:LEN) and KB Home (NYSE:KBH) continue to offer reasonable options for homebuyers to settle in convenient locations.

Lennar Corporation (NYSE:LEN) is an American home construction company that constructs affordable, move-up, and active adult homes primarily under the Lennar brand name. It also engages in the development of high-quality multifamily rental properties. On May 29, Lennar Corporation (NYSE:LEN) reported the initiation of sales at  Franklin Townes, the company’s first community in Johnston County. Move-in ready homes in the community have prices starting from the mid $200,000s. Those who wish to seek a small-town charm while being close to downtown Raleigh can resort to the community.

Lennar Corporation (NYSE:LEN) is making strides in the home construction space and may be one of the best housing stocks to buy now according to hedge funds, and that too at a discount. According to our proprietary database, 75 hedge funds held stakes in Lennar Corporation (NYSE:LEN) at the close of the first quarter of 2024, up from 65 hedge funds in the preceding quarter. Of those, Marshall Wace LLP was among the top shareholders and increased its position by over 250% in the company to $286 million. As of May 31, Lennar Corporation (NYSE:LEN) is trading at a PE multiple of 11x on a forward basis and has gained over 45% over the past 12 months. The company has managed to grow its EPS by 20% on average over the past 5 years and analysts polled by Yahoo expect the company to grow its earnings by 6% in 2024 and 19% in 2025, from $13.73 in 2023.

KB Home (NYSE:KBH) is one of the largest home builders in the United States. The firm builds quality homes that are customized as per the buyer’s preference and available budget. On May 24, KB Home (NYSE:KBH) announced the grand opening of its recent home community situated in southwest Las Vegas. The new community ‘Brevi’ offers homes priced from the mid $400,000s. Residents can easily access Highway 160, Interstate 15, and Interstate 215. For recreation, they can also visit the nearby Exploration Peak Park and Mountain’s Edge Regional Park.

KB Home (NYSE:KBH) is trading at a compelling PE multiple of 9x on a forward basis as of May 31, and is also offering a dividend yield of 1.43%. Hedge funds are piling into the stock. At the close of the first quarter of 2024, 32 hedge funds held positions in the company, up from 25 in the previous quarter. The company has a strong track record of profitability and has managed to grow its EPS by 21% over the past 5 years. Analysts expect KB Home (NYSE:KBH) to grow its EPS further by 12.5% in 2024 and 20.4% in 2025, from $7.03 in 2023. For 2024, KB Home (NYSE:KBH) is guiding to $6.7 billion in revenue, supported by its backlog, homes in production, and starts pace.

Now that we have analyzed the prevailing conditions in the US housing market, let’s find out the US housing market where sky-high home prices are finally falling.

Our Methodology:

In order to compile a list of the 25 cities where home prices are falling most now, we sourced data from Zillow. We utilized Zillow’s Metro Explorer to see the metro-wise change in median list prices over the span of 1 year. The median list prices are available as of March. Hence, all US cities that experienced major price declines since March 2023 have been ranked on our list. Please note that we have excluded those cities that recorded minor declines in home prices for instance those lower than 1%.

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Urban Honolulu’s Sky High Home Prices Are Finally Falling

Urban Honolulu

Year-Over-Year Change in Median List Price: -6.1%

Urban Honolulu has recently been witnessing a decline in its home prices. As of March, the market boasts a median list price of $725,000. This price has declined by 6.1% since 2023. When compared to the pre-pandemic period, home prices have escalated by 13.7%. Historical price trends for Urban Honolulu’s market show that the median list price was at its peak in 2022 when it was recorded at $800,000. Before that, the price varied from $655,000 in 2019’s start to $610,000 at the end of 2020. While the median list price initially dropped to $580,000 at the beginning of 2021, it saw a constant rise and climbed up to $690,000 through 2021 before it fell to $679,000 at the year’s end. 2022 followed a similar trend as home prices fell at the start and then rose to their peak of $800,000 and then declined again to $780,000 before the start of 2023. 2023 witnessed a fluctuating pattern of home prices with price decreases and increases. However, 2024 could be the sigh of relief American homebuyers who wish to settle in Urban Honolulu. The year started with falling prices, with the median list price dropping from $750,000 at the year’s start to $725,000 in March.

Despite the price decline, the market has been deemed as one of the severely cost-burdened local housing markets where more than 50% of the income has to be spent on a median-priced existing home. Based on a quarterly analysis of housing costs in the US, The National Association of Home Builders revealed that Urban Honolulu is the second most severely cost-burdened market since 73% of a typical family’s income is required to make a mortgage payment on an existing home.

To learn about other cities where home prices are falling most, you can check out our detailed on the 25 Cities Where Home Prices Are Falling Most Now.

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Disclosure: None. This article is originally published on Insider Monkey.