Of course, a few weeks later, the pandemic housing boom began to falter. With every forecast since, Zillow has cut its 12-month home price outlook. In April, Zillow revised it down to 14.9%. In May, it was revised down to 11.6%. In July, it was revised down to 7.8%. In August, it was revised down to 2.4%. In September, it was revised down to 1.2%.
However, this week Zillow finally stopped downgrading its 12-month outlook. Over the next 12 months, Zillow now expects US home values to increase by 1.4%.
Whenever a company like Zillow talks about the “US housing market” or “US home prices”, it is an aggregated view of the country. In each regional housing market – heck, in each neighborhood – the results can vary significantly. To better understand Zillow’s forecast, let’s take a look at regional real estate market data. We’ll start by looking at what’s happened to home values this summer, then dig deeper into Zillow’s regional forecast.
In May, Moody’s Analytics chief economist Mark Zandi said Fortune that rising mortgage rates coupled with “overvalued” house prices would push the US housing market into a real estate correction. A housing correction being a period when the US housing market – which has been priced at 3% mortgage rates – would work towards equilibrium. In all markets, this would translate into a sharp drop in home sales. It would also, Zandi said, put bubbly markets at risk of property price corrections.
That’s exactly what we’ve seen this summer: home sales have plummeted across the country, and the bubbly markets in the western half of the country have also seen home prices fall.
According to Zillow, 117 regional markets (see chart above) saw declines in home values between May and August. Of these, 36 markets recorded declines of more than 3%. For the most part, these markets have fallen into one of two camps. Either they’re booming cities — like Austin (down 7.4%) and Boise (down 5.3%) — or they’re high-cost tech hubs. The bubbly markets simply saw home values detach from local fundamentals. Markets like Seattle (down 3.8%) and San Francisco (down 7.8%) are particularly rate sensitive. Not only are high interest rates deterring high-end home buyers in San Francisco and Seattle, but they’re also having an acute impact on tech employment.
“Across the country, affordability issues have pushed potential buyers away. Of course, this destruction of demand has been more pronounced in some markets than in others. months that followed,” the Zillow researchers write.
While 117 markets saw home values fall this summer, another 779 markets saw home values rise. In East Coast markets like Miami (up 4.1%) and Myrtle Beach, SC (up 4.5%), those gains have been quite significant. Simply put: this is not a one-time slowdown.
Over the last three months of 2022, Zillow expects the house price correction to continue in Western property markets, albeit at a more subdued pace. Between May and August, markets like Phoenix and Salt Lake City saw home values drop 4.4% and 7.1%, respectively. Between the end of September and the end of December (see chart above), Zillow expects home values to fall 2% in Phoenix and remain flat in Salt Lake City.
In total, Zillow expects home values to fall in 118 regional markets in the final three months of 2022. It expects 747 markets to show rising home values and 29 markets to remain flat. .
As 2023 approaches, Zillow predicts that the house price correction will run out of steam in some markets while accelerating elsewhere.
In markets like Boise and Phoenix, which have seen steep house price corrections this summer, Zillow expects prices to rebound a bit in 2023: Over the next 12 months, Zillow expects home values are up 4.3% in Boise and 1.7% in Phoenix.
Nationally, Zillow expects 271 markets to show declining home values between September 2022 and September 2023, while 607 markets will show rising home values and 19 markets remain stable.
Why does Zillow think the house price correction won’t go national? It comes down to a tight supply.
“A pullback in demand has pushed prices lower, but although the housing market is not as tight as it once was, the lack of listings for sale is providing some price support against further declines,” the Zillow researchers wrote. “Active inventory for sale has increased steadily through the spring and summer, but is still nearly 40% below pre-pandemic levels.”
Soaring mortgage rates not only resulted in fewer homebuyers, but also sidelined some sellers. Some sellers refuse to lower their price. While others are not eager to give up their 2% or 3% fixed mortgage rate. Industry insiders refer to this phenomenon as the “lock-in effect”.
“This dynamic is different from past housing market downturns that have driven prices lower, and continued tight supply could insulate the market from a significant price correction, even if demand has fallen. For example, during the Great Recession, the decline in home values was accompanied by an increase in new listings, including many distressed sales,” write the Zillow researchers.
Let’s be clear: Zillow remains optimistic.
A growing chorus of research firms and banks are predicting the biggest house price declines yet to come. This includes companies like Goldman Sachs, Wells Fargo, Morgan Stanley, Moody’s Analytics, Capital Economics, Zonda, Zelman & Associates, Fannie Mae and John Burns Real Estate Consulting.
“The longer it lasts [mortgage] rates remain high, we think housing is going to continue to feel it and have this reset mode. And the affordability reset mechanism that needs to happen right now is activated [home] prices. And so there are a lot of markets across the country where we expect home prices to drop in double digits,” said Rick Palacios Jr., head of research at John Burns Real Estate Consulting. Fortune.
Only CoreLogic and the Mortgage Bankers Association agree with Zillow that we won’t see a year-over-year decline in U.S. home prices in 2023.
Want to stay up to date on the US real estate market? Follow me on Twitter at @NewsLambert.
Sign up for the Makeshift Features mailing list so you don’t miss our biggest features, exclusive interviews and surveys.
#Home #Prices #Heading #Local #Housing #Market #Zillows #Revised #Forecast