July Home Prices Drop as Housing Demand Cools

Redfin recently released a report that shows how home prices went down in July 2022. More than 15% of sellers lowered their asking prices in 97 US metros.

According to Redfin’s report, Boise, ID saw the largest percentage drop in July home prices at 69.7%, a major spike compared to 29.6% in the same period a year ago. Rounding out the top ten locations for the largest price drops in homes are: 

  • Denver, CO: 58%
  • Salt Lake City, UT: 56.4%
  • Tacoma, WA: 54.8%
  • Tampa, FL: 52.1%
  • Sacramento, CA: 52%
  • Indianapolis, IN: 51.4%
  • Phoenix, AZ: 50.1%
  • San Diego, CA: 49.7%
  • Portland, OR: 48.3%

The median share of home price drops in July 2022 was 32.3%. Redfin attributes the decline to higher mortgage rates, which slashed the buying power of home buyers and real estate investors. Another factor is a fall in housing demand, as well as an increase in housing inventory. 

Redfin, however, warns that the price drops we’re seeing will eventually flatten out, as sellers adjust and adapt to the cooling market. 

Shauna Pendelton, a Boise-based Redfin agent, said, “Individual home sellers and builders were both quick to drop their prices early this summer, mostly because they had unrealistic expectations of both price and timelines.” She added that sellers overpriced their properties because of similar properties, or real estate comps, selling at higher prices recently. 

Pendelton also advised sellers to price properties accordingly and appropriately. They should accept that the market has cooled and it will take longer than 30 days to make a sale. According to the Redfin agent, “If someone is selling a nice home in a desirable neighborhood, they shouldn’t need to drop their price.

Affordable Housing Is Once Again Within Reach

Last week, we reported about the National Association of Home Builders (NAHB) list of the locations with the most affordable housing. News about Redfin’s latest findings leaves both real estate investors and home buyers feeling somewhat relieved as housing affordability is once more within reach. 

Coming off the heels of NAHB’s list of most affordable real estate markets, Redfin gives us the good news that at least 97 major markets are experiencing home price drops. Investors welcome the news about July home prices with arms wide open, as it allows them to explore options they probably never considered before.

Related: NAHB Publishes Most Affordable Housing Markets in the US for Q2 2022

The top ten metros from Redfin’s report present investors with plenty of income-generating opportunities. How much they earn from an investment property will depend on their investment strategy, of course. But overall, because home prices are going down in a lot of markets across the country, people can now invest with greater confidence knowing that they can find affordable investment properties that offer a higher return on their investment. 

Of course, you will need to perform extensive due diligence to ensure you get more bang for your buck. It involves gathering as much information and data as you can on specific markets so you can conduct an investment property analysis

The great thing about modern real estate investing is real estate websites can help make the process a lot easier and more efficient. A website like Mashvisor, for instance, helps countless investors find the right income properties and make the best investment decisions. 

To learn more about how Mashvisor can help you find profitable investment properties, schedule a demo.

What Does This Mean for Real Estate Investors?

The decline in July home prices means different things to real estate investors. It will all depend on your investment goals and strategies at the end of the day.

Generally speaking, those who are heavily into real estate investing welcome such developments, as we’ve seen how fast home prices went up over the past year. The value of a home inevitably goes up over the years, but it’s always a welcome break for investors to be in a market where home prices are within their reach. 

Across the board, regardless of your strategy, you will benefit from the decrease in home prices. Buying an investment property is a bit more affordable now than in previous months. You get to save a bit more on capital since current home prices directly impact your down payment and mortgage rates. 

Related: When Will Mortgage Rates Go Down in 2022?

Different Strokes for Different Folks

If you’re looking at purchasing a home to make a profit off it, now may be a good time to buy since the 2022 US housing market is cooling down. How much you can make off an investment property depends on your approach. You can choose to flip houses, rent them out, or go with the BRRRR strategy. Each approach will give you different results. 

Fix and flips will probably cost you a bit more on capital. What you save in home prices can be channeled to rehabilitation and improvement. As with the fix-and-flip strategy, it usually takes a few months before an investor can sell the property. By then, the market will most probably have already shifted. Home prices are likely to have picked up again or gone down, depending on various factors. 

On the other hand, rental property investors may fare a bit better than house flippers since rental properties provide long-term gains. The more affordable home prices today will likely get them better dollar-for-dollar returns in the long term, especially when the rental market picks up. 

The bottom line is that your return on investment on a property purchased at lower prices today will depend on your chosen strategy. 

Home Prices Drop in July as Demand for Housing Cools - House Renovation

Real estate investors can turn to the fix-and-flip strategy, but not without waiting for a few months to sell the property and seeing market conditions likely change.

Top 5 Metro Areas With the Largest Drop in Home Prices in July 2022

For real estate investors looking to take advantage of the downward trend in July home prices, here is Mashvisor’s data for Redfin’s top five markets with the most significant price drops:

1. Boise, ID

  • Median Property Price: $693,026
  • Average Price per Square Foot: $443
  • Days on Market: 54
  • Monthly Traditional Rental Income: $1,399
  • Traditional Cash on Cash Return: 0.44%
  • Traditional Cap Rate: 0.45%
  • Price to Rent Ratio: 41 (high)
  • Monthly Airbnb Rental Income: $2,356
  • Airbnb Cash on Cash Return: 1.15%
  • Airbnb Cap Rate: 1.17%
  • Airbnb Daily Rate: $132
  • Airbnb Occupancy Rate: 54%
  • Walk Score: 36

2. Denver, CO

  • Median Property Price: $633,779
  • Average Price per Square Foot: $574
  • Days on Market: 43
  • Monthly Traditional Rental Income: $2,301
  • Traditional Cash on Cash Return: 1.73%
  • Traditional Cap Rate: 1.76%
  • Price to Rent Ratio: 23 (high)
  • Monthly Airbnb Rental Income: $3,201
  • Airbnb Cash on Cash Return: 2.06%
  • Airbnb Cap Rate: 2.09%
  • Airbnb Daily Rate: $182
  • Airbnb Occupancy Rate: 62%
  • Walk Score: 53

3. Salt Lake City, UT

  • Median Property Price: $698,604
  • Average Price per Square Foot: $423
  • Days on Market: 45
  • Monthly Traditional Rental Income: $1,487
  • Traditional Cash on Cash Return: 0.84%
  • Traditional Cap Rate: 0.86%
  • Price to Rent Ratio: 39 (high)
  • Monthly Airbnb Rental Income: $2,897
  • Airbnb Cash on Cash Return: 2.22%
  • Airbnb Cap Rate: 2.26%
  • Airbnb Daily Rate: $129
  • Airbnb Occupancy Rate: 58%
  • Walk Score: 48

4. Tacoma, WA

  • Median Property Price: $568,180
  • Average Price per Square Foot: $322
  • Days on Market: 58
  • Monthly Traditional Rental Income: $1,405
  • Traditional Cash on Cash Return: 0.80%
  • Traditional Cap Rate: 0.81%
  • Price to Rent Ratio: 34 (high)
  • Monthly Airbnb Rental Income: $3,005
  • Airbnb Cash on Cash Return: 2.69%
  • Airbnb Cap Rate: 2.74%
  • Airbnb Daily Rate: $146
  • Airbnb Occupancy Rate: 63%
  • Walk Score: 41

5. Tampa, FL

  • Median Property Price: $610,617
  • Average Price per Square Foot: $341
  • Days on Market: 76
  • Monthly Traditional Rental Income: $2,323
  • Traditional Cash on Cash Return: 2.65%
  • Traditional Cap Rate: 2.71%
  • Price to Rent Ratio: 22 (high)
  • Monthly Airbnb Rental Income: $2,491
  • Airbnb Cash on Cash Return: 1.70%
  • Airbnb Cap Rate: 1.74%
  • Airbnb Daily Rate: $145
  • Airbnb Occupancy Rate: 46%
  • Walk Score: 47

To start looking for the best investment properties in any US location of your choice, click here.

Wrapping It Up

The real estate market was inevitably meant to either plateau or drop. We’re seeing price drops in plenty of markets across the US caused by increasing mortgage rates, decreasing demand, and higher inventory. 

If anything, investors should take advantage of the downward trend in July home prices. With the help of Mashvisor, you can find the right income property that fits your budget and help you achieve your investment goals.

To access Mashvisor’s real estate investment tools, sign up for a 7-day free trial today, followed by 15% off for life.

Jerrie Parise

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