Home Prices Fell in These Cities for the First Time in a Decade. Is It Time to Buy?

Don't rush to make an offer just yet.

For the past few years, home buyers have struggled with soaring housing prices. And because real estate inventory is still very low on a national scale, we're unlikely to see a huge drop in prices across the board any time soon.

But that doesn't mean some markets aren't cooling off. According to a recent tweet by Redfin, median sale prices recently fell to a notable degree in these five cities for the first time in 10 years:

1. Austin, Texas
2. San Jose, California
3. Oakland, California
4. Sacramento, California
5. Phoenix, Arizona

If you live in one of these cities, or are looking to relocate to one of them, then you may be wondering if now's a good time to buy. But while you might pay less for a home itself, that savings is apt to be largely negated by the higher cost of taking out a mortgage loan.

Higher borrowing rates are still a problem

As of this writing, the average 30-year mortgage rate is hovering in the upper 6% range. A year ago, you would've been looking at the upper 3% range for the same type of loan. So all told, mortgage rates are nearly double today what they were a year ago. 

As such, even with a drop in home prices, a lot of buyers are apt to find that they're unable to swing a real estate purchase due to the total cost of doing so. And you might be one of them.

What’s more, limited housing inventory could make it harder to find a suitable home in the city you're looking to buy in. Maybe you want a larger space because you have several kids. Or maybe you're set on living on a quiet street instead of a noisy one. 

These are things you may need to compromise on due to a general lack of property listings. And when you're talking about signing an expensive mortgage, the idea of having to compromise becomes a lot less appealing. 

Waiting could pay off

If you're itching to buy a home in one of the cities above, and you can afford to do so now that prices are down, then by all means, go for it. But generally speaking, 2023 is not shaping up to be a great year for home buyers. So if you're in a stable housing situation at present -- meaning, you can afford your rent and you have no reason to believe that your landlord won't let you renew your lease when it comes due -- then it could pay to hold off on buying for another year or so and wait for mortgage rates to come down.

Also, persistently high borrowing rates could lead to a decline in buyer demand this year. So even if housing inventory doesn't pick up all that much, fewer buyers could lead to lower prices in time. And if prices in these cities drop further, then it may be possible to make the case to buy a home despite stubbornly high mortgage rates.