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The Federal Reserve’s aggressive rate hikes have stalled national home price appreciation and even caused notable declines in some markets, according to Freddie Mac.

Interestingly, the price declines are heavily concentrated in markets in the Western U.S. Why? For starters, some of these markets benefited hugely from the pandemic era price run-up. For example, home prices jumped 54% in Boise and nearly 50% in Phoenix during the 2020-2021 period. The rise of remote work enticed some households to leave more expensive markets—especially in California—for lower-cost markets in the region.

In the past two years, affordability has plummeted amid the continued influx of cash-rich buyers and sharply higher mortgage rates. In Reno, the typical mortgage-payment-to-income ratio is almost twice as high as the pre-COVID level. Affordability is equally stressed in Phoenix and Las Vegas. This is in stark contrast with the Midwest and Northeast, where higher mortgage rates alone have been responsible for the recent erosion of affordability.

The map shows that home price declines are clustered in markets that have traditionally drawn erstwhile Californian residents. ** But this trend has lost considerable momentum. In 2022, fewer people left California for regional “Zoom towns.” With fewer deep-pocketed remote workers entering the market, home values are receding back to levels supported by local incomes. This suggests that home prices have further to fall in these markets. Meanwhile, housing markets along the Pacific coast are also under pressure due to soft international migration, a weakened technology sector and local economies that have been slow to rebound from COVID. Tech sector woes are likely impacting Austin housing, too.

To be sure, home price declines will not be confined to the Western U.S. Higher mortgage rates and a slowing job market will eventually erode the Southeast’s strong price gains. But this is not 2008.  America today faces a chronic housing shortage – not the supply glut we contended with 15 years ago – and lending standards have generally remained prudent. As the Fed begins to cut interest rates later this year, home buying will likely pick up; however, the “Great COVID Migration” is unlikely to repeat, presaging a slower recovery for the once-booming “Zoom towns.”

 **State-to-state migration data from the Internal Revenue Service is current to 2019. There is strong evidence that this migration pattern intensified during the pandemic.