According to Zillow’s latest report, competition among buyers over few available houses has led to a remarkably active home shopping season. However, high mortgage rates are continuing to deter homeowners from listing, pushing inventory to record lows.
“Many homeowners are still opting not to sell and give up historically low mortgage rates. But those who do have been rewarded with bidding wars as buyers compete for limited options,” says Jeff Tucker, senior economist at Zillow. “Spring is traditionally the hottest time of year in the housing market, and 2023 has been no exception. Time will tell if seasonal price slowdowns arrive on time this year, later in summer.”
Typical U.S. home values grew by 1.4% from April to May, the strongest monthly appreciation since last June. That’s a few degrees cooler than the previous two spring seasons, but hotter than in 2018 or 2019. The typical home value is $346,856 – up 0.9% over last May and up 3.4% from a recent low in January.
A new loan on a home priced at the typical value in the U.S. would feature monthly mortgage payments just shy of $1,800. That monthly payment is 22% higher than last year, double that of May 2019, and the second highest on record after October 2022.
Affordability is still crucial for demand, and that’s reflected in the markets that are appreciating fastest. The largest monthly home value gains are in the Midwest – where Columbus, Ohio, led the way (2.2% monthly gain), followed closely by Cincinnati, Detroit, Richmond and Milwaukee.
Price growth also sprang back in West Coast tech hubs after falling significantly there late in 2022. Home values rose faster than the national average for the second straight month in San Jose (1.9%), Seattle (1.7%) and San Francisco (1.4%).
A shortage of new listings has dogged the housing market for almost a year. The flow of new listings was down 23% year over year in May – a milder drop than in April but nearly equal to that of March.
The chief driver is still higher mortgage rates, which make a new loan unattractive when the majority of mortgaged homes are currently financed for less than 4%. Even without intentions to buy again, anyone with a mortgage at a rate under 4% might be unwilling to sell when there’s a possibility to rent out the home for more than their carrying costs.
The lack of new listings, paired with resolute demand from buyers, has driven prices up and total inventory down to record lows for this time of year. The number of homes for sale on Zillow in May was 3.1% lower than last year — the former low-water mark — and a massive 46% below that of May 2019.
Sales measured by newly pending listings climbed 9.5% from April, shrinking the year-over-year decline to 18% in May and marking steady improvement since March. While this looks low in comparison to the hot pandemic era, sales figures are close to pre-pandemic standards.
Pending sales peaked in May in 2018, 2019 and 2022. The coming weeks will reveal if that seasonal pattern repeats itself or if the buying season stretches into summer, as it did in 2020 and 2021.
