After record-breaking speed and price growth in 2021 and 2022, the housing market has largely settled and avoided a dramatic plunge in prices, but challenges remain says Zillow. Home values are growing in line with pre-pandemic norms, a path that Zillow forecasts will continue. Buyers are finding a costly and competitive market, but one slightly calmer and easier to navigate.
“The housing market is stabilizing after the turbulence of the pandemic, but the effects will be with us for a long time,” says 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.”
While Zillow’s economists were confident that fundamentals would keep prices resilient, the sheer force of the pandemic housing boom caused others to project a 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.
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.
Recognizing the opportunity, homebuilders have accelerated activity. To confront cost pressures that high interest rates have put on them and their customers, builders are changing tactics, producing fewer single-family homes and more economical options. They are also offering financial incentives to buyers, including mortgage rate buydowns. Availability and flexibility are paying off: Sales of new builds are up 24% year over year.
A few potential bright spots for buyers are on the horizon as fall nears. Competition and price growth are easing as they typically do at this time of year. More typical, predictable growth in home prices will make it simpler for those considering new mortgages to prepare.
An increase in existing homes could be imminent. 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.
Photo by Peter Holmboe on Pexels.