Since the end of the Great Recession, home prices in the Rochester area have pretty much gone in one direction: up. In the last several years, they’ve soared.
But could that change soon? CoreLogic, a leading global property information and analytics firm, this month reported that the likelihood of home prices dropping here over the next 12 months was “very high”—a more than 70 percent chance of a decline.
Rochester is not an outlier. In May, CoreLogic rated 26 markets in the “high” (50 percent chance) or “very high” risk categories. In its latest report, 238 of the 392 markets it measured were in the “very high” camp. The number rated “very low” (0 to 20 percent)? Zero. Buffalo, Syracuse and Albany also are in the “very high” group, along with major metros like New York City, Boston, Chicago and San Francisco.
CoreLogic weighs various factors including income growth projections, debt-to-income ratios, affordability, unemployment projections, consumer confidence, mortgage rates, and inventory levels.
Nationwide, U.S. home prices continued their 128-month streak of consecutive annual increases in September, but the pace slowed for the fifth straight month to 13.5 percent.
“The increased cost of homeownership has dampened buyer demand and caused prices to decelerate at a faster pace than initially expected,” said Selma Hepp, interim lead of the Office of the Chief Economist at CoreLogic.
Still fast off the market
During the housing bubble that preceded the Great Recession, Rochester did not see the rocketing price hikes experienced in many metropolitan areas; when the bubble burst, that softened the impact here. If another downturn occurs nationally, the Rochester area could be well-positioned again.
So far, prices here have continued to rise even as sales slow. In the first half of 2022, the number of homes sold in Greater Rochester declined 8.8 percent compared with the same period a year earlier, but the median sales price rose 10.5 percent and reached a new high of $191,000, the Greater Rochester Association of Realtors reported in July.
At the end of the third-quarter, GRAR data released today show, the median sales price was up 11.1 percent year to date to $200,000, while closed home sales fell 7.6 percent.
The GRAR statistics are drawn from single-family residential activity in Allegany, Cayuga, Genesee, Livingston, Monroe, Ontario, Orleans, Seneca, Steuben, Wayne, Wyoming and Yates counties.
“We’re seeing people be a little more careful on how high they’re willing to go, compared to earlier in the year or last year,” says Mike O’Connor, president-elect of GRAR. “They’re being a little bit more cautious when it comes to bidding on homes, but it’s still happening. It’s amazing how many showings and how many offers are still coming in on listings. Especially the ones that are in good condition. They sell quickly.”
Indeed, even with higher prices, homes in Rochester continue to sell faster than in any other large metro nationwide. The median time from listing to sale in September was 25 days, Realtor.com’s monthly housing market trends report shows. In June, Rochester’s median time on market was 12 days, so the number has more than doubled in only four months, but it’s only half the national average of 50 days.
Another positive factor for Rochester: affordability. Realtor.com includes 50 large metros in its monthly report; only Cleveland had a lower median listing price last month. Rochester’s median listing price in September was $223,000 versus $235,000 in July but up 6 percent year over year.
Nationwide, the median listing price last month was $427,000, down from June’s all-time high of $449,000. The year-over-year growth rate of 13.9 percent was down from the prior month’s rate of 15.4 percent and the peak growth rate of 18.2 percent in June.
“When you look at what the prices are elsewhere, we’re still a good deal,” O’Connor says.
Across the country, the share of homes labeled price reduced grew to 19.5 percent in September, up from 11 percent a year earlier. The share in Rochester was 12.2 percent, sixth-lowest nationwide.
Sentiment turns negative
Housing sentiment has been dropping sharply, as measured by the Fannie Mae National Housing Survey. The share of respondents in September who thought it was a good time to sell declined for the seventh straight month and neared an all-time low. Only 19 percent of survey participants thought that it’s a good time to buy a home.
Unsurprisingly, the downward trend in buying sentiment aligns with the rapid rise in mortgage rates. Nationally, rates for a 30-year fixed-rate mortgage have jumped to nearly 7 percent, up from 2.65 percent in January 2021—the lowest rate in more than a half-century. The last time rates were this high: April 2002.
Many first-time homebuyers today have known only historically low mortgage rates. Will higher rates scare them off?
“The rates have been so low for so long,” O’Connor says. “Any person under the age of 35 has only seen rates around 3, 4 percent. So, when it goes up to 7 or more, to them, that’s very high. Somebody who’s in their 50s or 60s remembers the 15, 18 percent (in the early 1980s). We still think it’s a good deal, but you have to convince somebody that doesn’t know otherwise. So, that may be a factor.”
At the same time, he notes, the case for homebuying now is strengthened by what’s happened in the rental market.
“You have to look at the rental prices,” he says. “They’ve skyrocketed. And a lot of people are saying, ‘I could afford a home and it would be less than I’m paying for rent. … In many, many cases, depending on what you’re paying for rent, your mortgage, even at 7 percent, could easily be far less than what you’re paying for rent. And you’re building equity.”
The drop in buying sentiment nationally also has coincided with mounting concerns about the economy. Two quarterly declines in U.S. gross domestic product and stock prices in bear market territory have left many people concerned about their jobs and investment portfolios. In Rochester, the jobless rate has been edging upward since June, roughly in line with the national rate. Total nonfarm employment here fell for three straight months, then starting to swing upward again in June.
The inventory factor
Along with rising mortgage rates and economic uncertainty, those who think it’s a bad time to buy a home often cite high prices as a primary reason. A key factor in why prices still have not retreated: low inventory.
“People who’ve refinanced their home—at, say, a 2.9 or 3.1 percent interest rate—may decide to sit tight and not move, knowing that the rates are now up to 7.1. So, that is a concern obviously, which will only decrease our inventory,” O’Connor says. “And we’re already at historically low levels.”
While CoreLogic sees a very high likelihood of a home price drop here in the next 12 months, it makes no prediction on how sharply prices might decline or how long the period of lower prices might last. In this century, quarterly price declines have outnumbered gains in only two years: 2007 and 2009.
O’Connor sees no reason to think another prolonged stretch of falling prices is on the horizon in the Rochester area.
“I think there will be some adjustments, now that we see that overall prices are beginning to stabilize; knowing that, people may not be willing to grossly pay above list price,” he says. “I won’t say overpriced, because when you have multiple offers on a property, you have three or four people willing to pay that price, in my opinion that’s not overpaying for the property.
“Probably our worst case will be that we would flatten out. I don’t see us retracting. I really don’t see that happening. I say that because we were static for so many years and we’ve only seen this explosive increase in prices over the last, maybe, four years. No more than that. And we’re still a bargain compared to most places in the country.”
Paul Ericson is Rochester Beacon executive editor. The Beacon welcomes comments from readers who adhere to our comment policy including use of their full, real name.