Housing markets in tech hubs were in high demand during the pandemic, with potential buyers facing fierce competition on homes in cities like San Jose and Austin. But with the tech sector in turmoil, a looming recession, and consistently elevated mortgage rates, that trend is now making an about-face.
While bidding wars were common in tech hubs during the height of the pandemic, housing markets in these areas are cooling more rapidly than the markets in other parts of the nation, according to a new Redfin report.
According to Redfin’s analysis, Austin, Texas has experienced the most rapidly cooling housing market in the nation over the last year. Seattle, Phoenix, Tacoma, Denver, Las Vegas, Stockton, San Jose, Sacramento, and Oakland round out the top 10.
While Austin was the most popular migration destination in the U.S. in early 2021, the Texas tech hub has been impacted by tech layoffs, dwindling tech stock values and unsustainable high home prices. In turn, it has cooled faster than any other U.S. housing market over the last year, according Redfin’s analysis.
In Austin, the total supply of for-sale homes rose 140% year over year in February — the second-biggest increase in the U.S., according to Redfin’s data. Pending sales also dropped by 40%.
In addition, just 16% of the homes in Austin went under contract within two weeks of hitting the market. That’s a significant decline from February 2022, when 38% of homes in Austin were under contract within two weeks of being listed.
The story is similar in San Jose, California, where the typical home sold for just 0.6% above its asking price in February, down from 12% above asking a year earlier. That’s the largest percentage-point drop-off in the nation year over year. Pending home sales in San Jose also dropped 38% on an annual basis.
The Seattle market has also been disproportionately impacted by the tech turmoil over the last year.
In Seattle, about 8% of homes sold for over asking price in February 2022, but that number dropped to 1% of homes selling for below asking price by February 2023. Pending home sales also declined by 40% year over year in this market.
According to Shelley Rocha, a Redfin manager in the Bay Area, buyers in the Seattle and Bay Area markets have abandoned their search or canceled contracts because they’ve either lost their jobs or are worried about losing them.
The tech layoffs and dwindling tech job prospects have also kept some first-time buyers from entering the market, according to the report — and low inventory levels have put even more of a damper on buyer demand.
“Sellers are locked in because they can’t justify giving up a 2.9% mortgage rate to buy a new home with a 6.5% rate,” San Jose Redfin manager Kimberly Douglas said. “Everything coming on the market between $1 million and $2 million is getting multiple offers and selling quickly. I have one listing coming up in a desirable neighborhood with highly rated schools, and my only fear is that it’s going to sell too fast, leaving the owners no time to find something new.”
Phoenix was another magnet for remote tech workers during the pandemic — and the housing market in this city has experienced a similar fate.
In Phoenix, 70% of for-sale homes experienced a price drop in February, up from 21% one year earlier. Phoenix is also among the markets with the biggest upticks in seller concessions — another indicator of dampening demand.
Conversely, a number of housing markets in Connecticut, upstate New York and the Midwest have held up the best over the last year, Redfin’s data shows. Hartford, Connecticut held up best, followed by Milwaukee, New Haven, Bridgeport, Albany and Rochester.
According to the analysis, these markets were insulated because they are relatively affordable and were less affected by the surge in tech layoffs and the tech-stock issues that have impacted other areas.
Redfin’s report compared year-over-year changes in prices, price drops, supply, pending sales, sale-to-list ratio and other factors to determine housing markets that cooled down fastest from February 2022 to February 2023.