Home Prices Are Falling Fastest in This Pacific Northwest City as Weakness Spreads

Home prices were falling faster in Seattle than any other major U.S. metro in early spring, as the Pacific Northwest city displaced Denver as the nation’s weakest housing market. 

More than half of large metros posted year-over-year price declines in March. Seattle led the downturn with a 2.5% annual price drop, according to the latest data from the S&P Cotality Case-Shiller Index released Tuesday.

Denver, the previous month's weakest market, was second with a 2% decline, followed by Tampa, FL (-1.9%); Dallas (-1.7%); and Phoenix (-1.6%). Los Angeles (-1.6%) and Washington, DC, (-0.1%) also turned negative in March.

Notably, Tampa, previously the nation's most distressed market, has begun showing signs of stabilization, with its annual price decline decline narrowing from -2.1% in February to -1.9% in March.

Nationally, the value of single-family homes as measured by repeat transactions posted a 0.7% annual gain in March, down from a 0.8% increase the month prior.

"More than half of the 20 major U.S. housing markets recorded year-over-year price declines in March,
reflecting a broadening and deepening housing slowdown," says Nicholas Godec, head of fixed income tradables and commodities at S&P Dow Jones Indices. "With consumer inflation accelerating to roughly 3.3% in March, U.S. home values have now fallen in real terms for the 10th consecutive month, underscoring an ongoing erosion of inflation-adjusted housing wealth."

A national housing market divided

The March results highlight a stark geographic divergence: Markets in the Midwest and Northeast are sustaining price growth, while those in the Sun Belt and West are in the red.

Bolstered by constrained resale supply, Chicago lead all major metros with a 6.1% price growth, followed by New York City (4%) and Cleveland (3%).

"The 8.6-percentage-point gap separating Chicago from Seattle underscores how localized this housing cycle has become," says Realtor.com® senior economist Anthony Smith. "In markets where inventory has rebuilt more quickly, new construction continues to offer an increasingly competitive alternative, with recent Realtor.com research showing buyers of newly built homes can save an average of $25,000 in ownership costs over the first decade compared to older existing stock."

The latest data from S&P Cotality Case-Shiller reflects sales closing from January through March—a period that captured the most favorable rate environment in over three years, with the 30-year fixed-rate mortgage briefly dipping below 6% in late February before climbing back above 6.3% by the end of March.

As of late May, mortgage rates have risen to 6.51%, pushed higher by renewed inflation concerns and elevated energy prices.

"The rate environment has shifted meaningfully from the brief sub-6% window earlier this year, introducing fresh headwinds as the spring market ramps up," says Smith. "At the same time, inventory is running above year-ago levels in many markets, and affordability has continued to subtly improve as incomes outpace home price gains."

Reflecting the deeply fragmented nature of the U.S. housing market, as underscored by the Realtor.com Market Clock, supply-constrained markets will likely sustain price growth even as the national picture cools.

The Case-Shiller Index reports on a two-month delay and reflects a three-month moving average of home sales prices.

Homes usually go under contract a month or two before they close, so the March report primarily reflects purchase decisions made in the winter months.

Although the Index's price data is delayed by several months, it is considered one of the best available measures of changing home values, because it is based on repeat transactions on the same properties.