A tale of three cities: Why national trends don't tell the whole story
Agents in Cleveland, Austin and San Francisco see reason for optimism as their local markets stabilize, or even take off.
Key points:
- Cleveland, one of several relatively affordable Midwest metros, is a "good, healthy market" for first-time buyers.
- Austin and San Francisco, pricier markets that saw a surge in home prices, are starting to normalize, though inventory and affordability are challenges.
- Sellers are more likely to make incentives in markets where buyers may otherwise be priced out.
Cleveland still rocks.
The city along the southern shore of Lake Erie — and home of the Rock and Roll Hall of Fame — continues to attract homebuyers, reinforcing its Zillow designation as the second-hottest market for 2023 among major metros.
Meanwhile, in the Southwest, Austin is warming up despite being one of only a few metros with an annual decline in home values, per Zillow's most recent monthly market report. And farther west in San Francisco, housing prices are returning to normal, although inventory issues remain.
While national housing trends can tell a different story, local agents see promise in their markets.
Affordability driving interest in Cleveland
"Affordability is creating that hot market trend for us," said Alex Cruz, an agent with Berkshire Hathaway HomeServices Professional Realty in Cleveland.
Buyers are relocating to the city to work at the Cleveland Clinic, one of the largest employers in northeastern Ohio. Out-of-town investors are taking advantage of the lower price points.
Others are moving to take advantage of Cleveland's arts and culture scene or coming back for good after visiting events like the NBA All-Star Game or the Republican National Convention.
"As people visited, they realized Cleveland was not [what] they thought it was," Cruz said.
As a result, inventory is at a minimum, much like the rest of the country. Homeowners are staying put, loathe to give up their locked-in low interest rates.
First-time home buyers still have a shot, as long as they act quickly. "It's still a good, healthy market for them," Cruz said. "If you know what you want and you see it, you execute."
Austin on the rebound
As for Austin's declining home values? The Austin Board of Realtors sees that as a sign of "stabilizing" and "rebalancing."
Erin Morrison, an agent with Twelve Rivers Realty, agrees. As soon as the new year began, she said her phone started ringing.
"The market is coming back to life," Morrison said.
And she expects it to be a strong year.
Why? Though creeping up, interest rates are still in the fives and sixes for 15- and 30-year mortgages. And there is more inventory in the area than in the past, due in part, Morrison suspects, to builders trying to unload their slower inventory.
Consistent with national trends, an increasing number of builders are offering buyers incentives such as closing cost credits or mortgage rate buydowns. "They are willing to pay to get buyers in houses," Morrison said.
Sellers, too, are offering incentives to buyers — money for landscaping, or paying down their interest rate. And, they are more willing to accept contingent offers.
But first-time buyers may struggle in Austin due to the rapid increase in home values over the past two years and rising interest rates.
A market correction in San Francisco
The San Francisco Bay area is still experiencing "a major inventory shortage" that is slowing sales, said Bill Aboumrad of Legacy Real Estate and Associates ERA Powered.
"Inventory is still well below where it should be," he said, adding that there is "barely" a one-month supply of homes for sale.
A year ago at this time, homes would be on the market for a week to 10 days. In May and June of 2022, the market "tanked," and by the third quarter, the average home stayed on the market for 21 days.
Prices have dropped an estimated 15-20% since last June, Aboumrad said.
"When the market was hot, homes were selling 100-115% over the asking price," he said. "Now, they're selling 95-97% over asking."
But interest rates moved up at the same time, creating an affordability issue.
As in Austin, sellers are making concessions, but it isn't about the money, as it was a couple of years ago when sellers were clearly cashing out. Now the market is full of sellers who have to sell: Someone died, someone's getting divorced, or a family is having another child and needs a bigger place.
"It's not about the money," Aboumrad said. "It's the house."
Silicon Valley tech layoffs don't appear to have affected the market, Aboumrad said.
"We still run ahead of the rest of the country," he said, adding that the job market remains strong, and the economy hasn't impacted the area the way it has in other regions.
"We have been fortunate in that area."