In February, Zillow housing economists made a bold call that US home prices had bottomed out and would continue increase by 0.5% over the next twelve months.
In the months leading up to that call, US home prices, as tracked by the Zillow Home Value Index, not only started rising again, but also hit a new all-time high. This uptick was driven by tailwinds generated by tight inventory levels, which proved strong enough to overcome headwinds from the mortgage rate shock.
That recovery in US home prices coincided with Zillow’s repeated upward revisions to its home price forecasts. In its latest revision, Zillow predicts US home prices will rise 6.5% between July 2023 and July 2024 – up from the 6.3% announced last month. For perspective, US home prices, as tracked by Case-Shiller, have increased on average by 5.5% per year since 1975.
“Limited inventory for sale continues to push home prices up even as mortgage rates remain high,” the Zillow home economists wrote. “In July, just over half the number of homes were for sale compared to the same month in 2019, and in July there were 29% fewer new homes coming onto the market than usual at this time of year before the pandemic. This shortage has fueled competition for the homes for sale. Homes that were under contract (or ‘pending’) in July did so in 12 days – a week and a half faster than usual in 2018 and 2019.”
While Zillow economists expect national home prices to rise 6.5% over the next 12 months, their forecasting model predicts that 120 of the country’s 400 largest housing markets will see an increase of 7.0% or more over the next 12 months.
There is not just one unifying factor; these 120 housing markets are spread across the country. They are scattered across the West (such as Santa Maria, California), South (Tampa), Midwest (Indianapolis), and Northeast (Scranton, Pa.).
While Zillow thinks U.S. home prices have bottomed out—something economists at CoreLogic and the AEI Residential Center believe too – not every company agrees. Companies like Moody’s Analytics and Morgan Stanley I think US home prices have to give up a bit more, and that will happen between now and the end of 2024.
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