- Home values are rising at pre-pandemic rates nationally and are forecast to stay the course.
- Buyers still have few choices, but builders are adapting to help fill the gap.
- A new survey shows rising numbers of homeowners intend to sell.
SEATTLE, Aug. 1, 2023 /PRNewswire/ — After record-breaking speed and price growth in 2021 and 2022, the housing market has largely settled and avoided a crash in prices, but challenges remain. Home values are growing in line with pre-pandemic norms, a path that Zillow® forecasts will continue. Rent is also back to “perfectly average” growth after its own wild ride. Buyers are finding a costly and competitive market, but one slightly calmer and easier to plan and budget for.
Sellers continue to sit on the sidelines, holding on to low mortgage rates. And while rates could tick down over time, the issue of affordability, which has grown worse over the past few years, is unlikely to significantly improve.
“The housing market is stabilizing after the turbulence of the pandemic, but the effects will be with us for a long time,” said Zillow senior economist Jeff Tucker. “Price appreciation is back to normal after a short reset, but that means buyers still face serious cost challenges and competition, especially for the most affordable houses and in less expensive markets.”
Record-setting home value growth during the pandemic was largely supported by market fundamentals. Home-buying demand spiked because many households had not yet been able to strike out on their own after years of underbuilding during the Great Recession, and the huge millennial generation had entered prime home-buying age. Ultra low mortgage rates, combined with the pandemic-spurred boom in remote work, added fuel to the fire.
Demand cooled as mortgage rates doubled over the course of 2022 to the upper 6% range, which is roughly where they stand today. Listings typically went pending in 10 days during this year’s spring shopping season — slower than the mere six days during the height of the pandemic, but much faster than the 19 days in 2019.
While Zillow’s economists were confident that fundamentals would keep prices resilient, the sheer force of the pandemic housing boom caused others to project an equally painful comedown to follow. Those projections have not come to pass. At the start of this year, Zillow’s forecast for 2023 home values called for a 0.7% decline. Now, Zillow expects 5.5% growth in 2023 — roughly in line with a normal year before records were shattered during the pandemic.
Home values fell in the second half of last year, but the same low mortgage rates that supercharged pandemic demand for purchases and refinances also put a floor under how far home values could fall. Existing homeowners have largely chosen to stay put rather than purchase another home with a much higher mortgage rate, which would cost hundreds of dollars more each month.
The resulting decline in supply has been more significant than the pullback in demand. Mortgage rates could tick down in the long term if inflation continues to recede, but they almost certainly won’t return to the historic lows seen during the pandemic.
For those still working to save up for a home, the record-breaking rise in prices and subsequent surge in mortgage rates effectively doubled the cost of a mortgage. At 20% down, monthly payments rose from about $875 in 2019 to just over $1,800 now.
Competition for the few homes listed is high, and home values have once again been growing at a roughly normal pace historically. Cost pressures and a lack of choices for buyers have dragged down sales. Zillow forecasts 4.2 million existing home sales in 2023, which would be the lowest level since 2010.
New construction is helping fill the gap
Recognizing the opportunity, home builders have accelerated activity in recent months after a sluggish end to 2022 and an equally sluggish beginning to 2023.
Builders are changing tactics to confront cost pressures that high interest rates have laid on both them and their customers, with detached single-family homes giving way to more economical options. Builders are also more likely than homeowners to offer attractive financial incentives to buyers, including mortgage rate buydowns. Availability and flexibility are paying off: Sales of new builds are up 24% year over year.
Rent growth is ‘perfectly average’
Renters who have dealt with massive price hikes and volatile markets should appreciate a return to normal growth as well. Tucker called rent growth “perfectly average” in Zillow’s latest rent report, posting 4.1% year over year growth and a monthly increase of 0.6% — both right in line with pre-pandemic trends.
Rent growth stalled at the outset of the pandemic, then soared to a record-high peak of 16.2% annual growth in February and March 2022 before rapidly decelerating again.
Now, the cooldown in rent inflation is finally underway. As predicted by Zillow economists, rent inflation measured in the Consumer Price Index lagged behind market rent measures like Zillow Observed Rent Index by about 12 months and is ticking down.
What’s next for prospective buyers?
There are a few potential bright spots for buyers on the horizon as we head toward the fall. Competition and price growth are both easing up as they typically do at this time of year, while more normal, predictable growth in rents and home prices will make it easier for those considering new mortgages to budget and plan.
More existing homes could be on their way. In a new Zillow survey, 23% of current homeowners said they are considering selling their home in the next three years or currently have it up for sale. That’s compared to just 15% last year.
About Zillow Group
Zillow Group, Inc. (NASDAQ: Z and ZG) is reimagining real estate to make home a reality for more and more people. As the most visited real estate website in the United States, Zillow and its affiliates help people find and get the home they want by connecting them with digital solutions, great partners, and easier buying, selling, financing and renting experiences.
Zillow Group’s affiliates, subsidiaries and brands include Zillow®; Zillow Premier Agent®; Zillow Home Loans℠; Trulia®; Out East®; StreetEasy®; HotPads®; and ShowingTime+℠, which includes ShowingTime®, Bridge Interactive®, and dotloop®.
All marks herein are owned by MFTB Holdco, Inc., a Zillow affiliate. Zillow Home Loans, LLC is an Equal Housing Lender, NMLS #10287 (www.nmlsconsumeraccess.org). © 2023 MFTB Holdco, Inc., a Zillow affiliate.