Pandemic hotspots like Phoenix and Denver hit their housing market peak earlier this year and there's more evidence than ever that they're descending back to earth

• The weather isn't the only thing cooling off — pandemic boomtowns are too.
• Popular pandemic moving spots were among cities that have seen the most slowdown since fall of 2021.

It's official: winter for some of the pandemic's hottest housing markets is going to be chillier than it has been over the past couple of years.

Throughout the last few months, there has been no shortage of anecdotes suggesting that a major cooldown is underway, especially in cities like Denver, Austin, Texas, and Phoenix, where sales have collapsed and prices are down from peaks in the spring. Considering sales alone, these cities were among those that saw the most dramatic declines, according to data technology company Zonda.

More likely than not, the slump is only beginning.

"There are many forces working against the housing market right now," Zonda Chief Economist Ali Wolf said in a report last week.

Plummeting sales and softening prices are a disturbing twist for these popular Sun Belt markets that were the regions-of-choice for everyday homebuyers and deep-pocketed investors alike in 2021. It all changed during the surprising and inexorable surge in mortgage rates above historic averages, from below 4% early in the year to more than 7% by late October. By late spring, the markets were feeling the pain.

"It really has been fast and furious," economist Ivy Zelman said of the market whiplash, in a recent interview with investment advisory firm Oxbow Advisors.

The US housing market has yet to scrape the bottom, Zelman told Oxbow. The decline in home sales could continue through the first half of 2023, with transactions down another 20%, she said.

Homebuyers' favorite markets have fallen the furthest, and the fastest

In 2021, Phoenix was a favorite destination for large single-family home investors looking to cash in on people flocking to the Sun Belt; Austin was the place to go if you were a techie looking to leave the Bay Area; and well-off millennials settled in Denver, after escaping the madness of corporate life for the mountain city's outdoorsy-flair.

A handful of other cities — pandemic hotspots and mostly located in the southern tier of the US — saw a similar influx, and an ensuing jump in home prices.

But skip ahead just a few months, and it was those places that began to cool the most quickly. In fact, half of the 10 cities to see the largest slowdowns this fall were so-called zoomtowns that benefitted from an increase in remote working and a stronger interest in outdoor pursuits.

Would-be homebuyers shut out of the market by high rates and bearish investors fearing a recession have retreated from these markets. Some jaw-dropping numbers can be seen in Phoenix, Denver and Austin, where pending sales in the 12 months through October plummeted by more than 70%, 67% and 53%, respectively, the Zonda report shows.

Asking prices have dropped with demand

With fewer people buying homes in these areas, sellers are adjusting their expectations and dropping asking prices fast, according to a Redfin report on Monday.

In both Austin and Phoenix, home prices are rising at a pace 23% slower than they were last year, the report shows. And while home prices in both cities — like others on Redfin's list — are more expensive than they were last year, they are actually lower than they were at the peak in late spring or early summer.

Since late Spring, home prices in Phoenix have dropped 6.7% and in Austin, prices have dropped by over 10% since the end of May.