Research groups such as Zelman & Associates, Capital Economics, and John Burns Real Estate Consulting believe the country is close to collapsing home prices. Soaring mortgage rates, in his view, pushed the “excessive” US housing market over the edge.
That begs the question: Why does Zillow remain so bullish?
A lot of it boils down to supply. Between the first week of January and the first week of July, inventory levels on Zillow.com jumped 18% — going from 546,800 listings to 642,800 listings.
Even with that jump, we’re still in a historically tight market. 54% less inventory remaining than the 1.4 million active listings we had in July 2019. As long as inventory is scarce, existing home prices are unlikely to fall.
That said, this latest Zillow forecast marks another downward revision. Amid weakening housing data, Zillow cuts its year-over-year home price outlook to 7.8% from 9.7%. This is the fourth month in a row that Zillow has issued a downward revision.
“The housing market is rapidly rebalancing from arguably the strongest seller’s market in decades, with rising inventory and easing competition for homes in the face of significant affordability challenges. The rebalancing is likely to continue given current macroeconomic headwinds,” Zillow researchers write.
Nationally, Zillow forecasts home price growth of 7.8% over the coming 12 months. But regionally, it varies – a lot.
Of the 911 regional housing markets analyzed by Zillow economists, 906 markets are predicted to see rising home prices between July 2022 and June 2023. Zillow expects only five markets to experience year-over-year declines. Greenville, Miss., had the largest predicted decline of 6.4%.
In the coming year, Zillow predicts that 741 markets will see home price growth of 5% or more. 136 markets are expected to see year-over-year home price growth of 10% or more. That’s Athens, Ga. (10.3% forecast growth) includes markets such as; Durango, Colo. (10.3%); Grenada, Miss. (10.3%); Fort Myers, Fla. (10.2%); and Morristown, Tenn. (10.2%).
Keep in mind that some of this house price growth is already baked in. At the end of data collection, household transactions are delayed. Many home sales that were finalized in August and September actually occurred in June and July.
Moody’s Analytics Chief Economist Mark Zandi doesn’t share Zillow’s rosy outlook.
Moody’s Analytics forecasts that US home prices will remain unchanged in the coming year. That marks the lowest level of home price growth since 2011. But that’s nationally. At the regional level, Moody’s Analytics expects home prices to fall in half of the country.
Earlier this week, good luck Moody’s Analytics reached out for access to its latest proprietary housing analysis. Researchers at the Financial Intelligence Agency calculated how home prices could change in more than 400 regional housing markets between the fourth quarter of 2022 and the fourth quarter of 2024.
Of the nation’s 414 largest housing markets, Moody’s Analytics predicts 204 regional housing markets will see rising home prices over the next two years. Meanwhile, Moody’s Analytics expects home prices to fall in 210 markets. The steepest declines, Zandy says, come in housing markets like Boise and Austin that are significantly “overvalued” compared to the underlying economic fundamentals. If a recession hits, prices in those markets could drop by 15% to 20%.
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