When Britta Erickson and her husband put their Denver home on the market last July, they thought they’d competitively priced the six-bedroom, four-bathroom house.
But their mid-century home in the affluent Hilltop neighborhood sat on the market for more than three months before they cut the listing price by 2 percent.
“We did a lot of walk-throughs, but the offers weren’t lining up,” Erickson said.
Even with the cut, demand didn’t pick up. The Ericksons ended up taking the house off the market, later settling for just over $1.1 million –– nearly 10 percent below the listing price.
Price cuts are increasingly common among the most expensive homes, especially in markets that had seen steep price hikes in recent years. As home price growth has outpaced wage increases, demand has dropped for the most expensive homes, forcing sellers near the top part of the market to drop prices more often than their lower- and mid-tier counterparts.
“When there’s a decrease in demand for a certain segment of homes, what tends to happen is homes sit on the market longer than they have in the past, and sellers maybe get a little nervous and start to cut prices,” said Ralph McLaughlin, deputy chief economist at CoreLogic.
The share of listings with a price cut increased in 84 of the nation’s largest 100 metro areas in the last year, Zillow data show. Price reductions are more common in the upper third of the market than among lower-priced homes.
That gap between higher- and lower-priced homes is starkest in places like Raleigh and Colorado Springs, where the number of homes available at the higher end of the market has been growing steadily. High-end listings in these cities have seen more than double the rate of price cuts of homes in the bottom third of the market.
“The $300,000 home just doesn’t have to have that type of a cut,” said Ken Lowman, a real estate broker and owner of Luxury Homes of Las Vegas. “There’s still a short supply of first-time, starter homes.”
In Lowman’s Last Vegas market, nearly a quarter of higher-priced homes have seen a price cut, compared to 16 percent of lower-tier homes. He said he’s seen homes in the $1 million-plus range sit on the market for nearly a year when owners resisted dropping their asking price.
Even with price cuts, buyers on a budget need to find a house with a seller willing to lower the price repeatedly.
That’s what Steve Maruszewski managed to do when he bought a house in Dallas two months ago. After accepting a job at the University of North Texas, the Pennsylvania native came across a home in the Dallas’ M Streets neighborhood. Its price had been lowered twice in the previous two months, and the sale price included another cut.
Some areas, such as cities in Texas, can maintain affordability because liberal zoning requirements encourage building. But in other major metros, affordability pressures mean there’s more competition for a short supply of starter homes. Single-family home construction hit its lowest level in more than 40 years last year, an outgrowth of the post-Great Recession halt in construction.
Regions that can add more houses to their market to tackle supply problems may see affordability struggles temper. But new construction is often hampered by zoning laws and higher labor prices amid a tight employment market. And high construction costs mean that when new homes are built, they often fall into the pricier range. The share of brand-new homes with a price cut rose nearly 6 percent in the fourth quarter of 2018.
Realtors hope price cuts and slowing price growth over the last year will draw buyers to the market this spring. Sales of existing homes rose 11.8 percent in February, a sign the market could be shifting toward buyers.