Where home prices are headed in 2023 in the local housing market, according to revised Zillow forecast

Of course, after a few weeks, the pandemic housing boom began to fade. Every forecast Since then, Zillow has lowered its 12-month home price forecast. 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 revising his downward 12-month forecast. Over the next 12 months, Zillow now expects US home values ​​to increase by 1.4%.

When a company like Zillow says “US housing market” or “US home prices,” they are talking about an aggregate view of the country. In every regional housing market — heck, in every neighborhood — results can vary wildly. To better understand Zillow’s forecast, let’s delve into the data for the regional housing markets. We’ll start by taking a look at what happened to home values ​​this summer, then we’ll look at Zillow’s regional forecast.

In May, Moody’s Analytics chief economist Mark Zandi said luck Rising mortgage rates along with “overvalued” home prices would push the US housing market into a housing correction. The housing market correction is the period when the US housing market – priced to mortgage rates of 3% – is working toward equilibrium. In each market, that may translate into a sharp drop in home sales. Zandi said that would put the buttery markets at risk of a house price correction.

That’s exactly what we saw this summer: home sales fell across the country, and frothy markets in the western half of the country also saw home prices plummet.

According to Zillow, 117 regional markets (see chart above) experienced a decline in home values ​​between May and August. Of those markets, 36 experienced a decline of more than 3%. Mostly, these markets fell 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. Butter markets have simply seen home values ​​detach from local fundamentals. Markets such as Seattle (3.8%) and San Francisco (7.8%) are particularly sensitive to interest rates. Not only do higher interest rates deter buyers from high-end homes in San Francisco and Seattle, but they also have a severe impact on employment in the tech sector.

“Across the country, affordability challenges have pushed would-be buyers to the sidelines. Of course, this demand destruction was more pronounced in some markets than in others. A year ago, higher-priced markets saw a disproportionately larger decline in active demand in 12 months that followed,” Zillow researchers wrote.

While 117 markets saw home values ​​fall this summer, another 779 saw home values ​​rise. In East Coast markets such as Miami (up 4.1%) and Myrtle Beach, SC (up 4.5%), these gains were fairly strong. Simply put: This is not a one-size-fits-all slowdown.

During the final three months of 2022, Zillow expects home price corrections in Western housing markets to continue, albeit at a more moderate pace. Between May and August, markets such as Phoenix and Salt Lake City saw home values ​​decline 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 stay flat in Salt Lake City.

In aggregate, Zillow expects home values ​​to decline in 118 regional markets in the last three months of 2022. It expects 747 markets to report an increase in home values ​​and 29 to remain flat.

Heading into 2023, Zillow predicts that the house price correction will lose steam in some markets while gaining momentum in others.

In markets like Boise and Phoenix, which have seen sharp corrections in home prices this summer, Zillow expects prices to rebound slightly in 2023: Over the next twelve months, Zillow expects home values ​​to rise 4.3% in Boise and 1.7% in Phoenix.

Nationwide, Zillow expects 271 markets to report declines in home values ​​between September 2022 and September 2023 — while 607 markets record home values ​​rise, 19 markets remain flat.

Why does Zillow think a home price correction won’t become national? It boils down to a lack of supply.

“The decline in demand has driven prices lower, but while the housing market is not as tight as it once was, the lack of listings for sale is providing some support for prices against further declines,” Zillow researchers wrote. “Active stock for sale has risen steadily over the spring and summer, but is still nearly 40% below pre-pandemic levels.”

Not only did higher mortgage rates translate into fewer homebuyers, but it also marginalized some sellers. Some sellers refuse to lower their price. Others aren’t eager to part with their fixed-rate mortgage rate of 2% or 3%. Industry insiders call this phenomenon the “closing effect.”

“This dynamic is in contrast to the previous downturn in the housing market that led to lower prices, and continued tight supply can insulate the market from a significant price correction, even with lower demand. For example, in the Great Recession, home depreciation was accompanied by / Urged it through an increase in new listings, including several faltering sales,” Zillow researchers wrote.

Let’s be clear: Zillow remains optimistic.

A growing group of research firms and banks are forecasting the steepest house price drops still awaiting. This includes companies such as Goldman Sachs, Wells Fargo, Morgan Stanley, Moody’s Analytics, Capital Economics, Zonda, Zelman & Associates, Fannie Mae and John Burns Real Estate Consulting.

“The longer that [mortgage] Prices remain high, we see housing will continue to feel and you will have that reset mode. And the affordability reset mechanism that must now occur is in the works [home] the prices. Thus, there are plenty of markets across the country where we expect home prices to drop more than 10%, says Rick Palacios Jr., head of research at John Burns Real Estate Consulting, luck.

CoreLogic and the Mortgage Bankers Association only agree with Zillow that we won’t see a year on year decline in US home prices in 2023.

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