Titan Properties USA

Is this the sign we’ve all been waiting for? After two years of elevated interest rates and inflated prices, new data from Realtor.com shows that house prices have begun to fall in certain cities across the U.S.

But hold on to your checkbooks. Let’s look closer to see if these cities are worth investing in now or if this is the start of a deeper price decline. 

Part of the reason for the price cuts is a slight easing of inventory, with more affordably priced homes coming on the market, pushing other listings down. 

These are the 10 cities that Realtor.com has pinpointed for the greatest declines in price:

Market February Median List Price Median List Price YoY Change
1. Miami, FL $550,000 -8.2%
2. Oklahoma City, OK $323,000 -7.4%
3. Cincinnati, OH $337,000 -6.4%
4.   Kansas City, MO $421,000 -4.9%
5.  Denver, CO $610,000 -3.6%
6.  San Jose, CA $1,367,000 -2.3%
7.  Raleigh, NC $440,000 -2.2%
8.  San Antonio, TX $335,000 -1.5%
9.  San Francisco, CA $989,000 -1.3%
10. Portland OR $600,000 -1.2%

Why Has Miami Lost Its Shine?

These figures pose some interesting scenarios for real estate investors. Miami’s influx of transplants that flooded the city during the COVID-19 pandemic caused house prices to spike by 56% in just over two years. Miami metro prices peaked at a lofty $625,000 in June before inevitably coming down.

According to the Florida Department of Highway Safety and Motor Vehicles, 127,000 New Yorkers moved to Florida in 2021 and 2022, causing its population to jump 1.9%. Millennials were the most common demographic moving to the Sunshine State. A Redfin survey showed that Florida was the place where Americans wanted to move to most. 

Another reason for the decline is the sheer number of condos—4,200— that builders have announced they’re adding to the greater Downtown Miami market since 2021. However, capitalizing on Miami’s popularity is not easy for investors. Miami Beach has convoluted rules regarding short-term rentals, where the tourist season lasts all year, and investors can make the most money. Soaring home insurance rates in the wake of the uptick in natural disasters and the 2021 Surfside condo collapse are also a hindrance to cash flow in Miami.

The Midwest Could Be Where the Smart Money Is

Price drops in the Midwest—again, the result of cheaper houses coming on the market—could be the sweet spot for investors for several reasons:

  • Lower prices make it easier to cash flow.
  • Short-term rental rules are not so stringent and could work well in college towns and near sporting venues.
  • Travel nurses working in major hospitals could be a potential audience for mid-term rentals.
  • Many Midwest cities, such as Pittsburgh, have reinvented themselves as tech towns and offer employment in established international tech companies.

Northern California Only Makes Sense for The Well-Heeled

The Northern California markets of San Jose and San Francisco also saw substantial price drops. During the pandemic, tech workers left the state to capitalize on high salaries and low living expenses. Also, a wave of layoffs at tech giants like Alphabet, Meta Platforms, and other companies further impacted the area. 

However, it remains to be seen whether this is a long-term trend. Silicon Valley will always be a hub for tech innovation and attract high earners. The advent of artificial intelligence (AI) will also cause fluctuations in the area. Tech companies affected might slash coders and tech writers, whose jobs AI could replace. 

Still, companies intrinsically bound to AI, such as Nvidia, are on an unprecedented hiring spree that is bringing thousands of new workers into the area, so expect the drop in house prices to be temporary. For the well-heeled, buying now could make sense.

Will Texas Hold ’Em?

Data from Zillow has highlighted falling house prices in Texas, another pandemic hot spot attracting remote workers from California. As with Miami, with the influx of out-of-towners, prices were destined to drop once the pandemic ended and companies ended remote work. That said, lower taxes and an influx of full-time tech jobs from companies such as Tesla and Samsung to Texas could increase prices once the current correction has stabilized.

Compared to California, Texas is still markedly affordable. According to Zillow, the average home price in Texas as of February 29 was $298,624, down 0.1% from a year earlier. As of March 7, nearly 20% of Texas listings on Zillow have had their prices dropped, most of them being in Fort Worth-Dallas, Houston, Austin, and San Antonio. 

The booming tech town of Austin is the state’s outlier. As of February 29, the average home value in the city was $533,719—6.2% down year over year, according to Zillow, but still markedly higher than elsewhere in the state.

Extreme weather aside, it’s hard to see Texas losing its shine anytime soon. Companies have invested too heavily in Austin’s tech corridor to suggest the start of a catastrophic housing market. For a long-term hold, investing in Texas seems a solid bet.

Final Thoughts

The advantages of investing in the Midwest or Texas are clearly defined: purchase prices and jobs. Investing in Miami, Austin, and especially North California works best for wealthy investors looking for a safe place to park their money and enjoy long-term equity appreciation. However, the Rust Belt and Texas cities outside Austin make more sense if you want to leverage and enjoy cash flow.

Make Easier and Smarter Financing Decisions

Deciding how to finance a property is one of the biggest pain points for real estate investors like you. The wrong decision may ruin your deal.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

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