Home prices in the United States, which are showing signs of cooling following a pandemic-recovery spike, are now expected to rise at a slower rate than previously predicted, according to real estate marketplace firm Zillow.
In its March report, Zillow predicted home prices would rise 17.8 percent year-over-year by February 2023. In its latest forecast published in June, Zillow predicts home prices will appreciate only 9.7 percent for the 12 months ending May 2023.
Not only is the latest prediction a major downward revision of the company’s earlier estimate, it also signifies a major deceleration from the 20.4 percent price appreciation seen over the past year. The reason for the company’s downward revision of home price growth is the cooling housing market.
“It will take time to confirm, but for now the trend appears to show that the market passed an inflection point for home values between April and May, transitioning from ever-hotter to somewhat-cooler price growth. This deceleration is a clear signal that buyers are dialing back their demand for homes in the face of daunting affordability challenges,” Zillow said in the June report.
Multiple other market experts are also predicting an appreciation in home prices in 2023. CoreLogic forecasts a 5.6 percent price growth over the coming year. Mortgage Bankers Association expects home prices to rise by 3.1 percent and Fannie May by 3.2 percent.
Capital Economics is predicting the opposite, forecasting home prices will decline by 5 percent over the coming year. The prediction is based on challenges to home affordability, including mortgage rates rising to 6.5 percent by the middle of 2023.
A major factor that could severely dent the prospects of home price appreciation is an economic recession. If the United States slips into a recession, Moody’s Analytics calculates national home prices will fall by 5 percent over the coming year, with significantly overvalued regional housing markets seeing price declines of up to 20 percent.
According to Taylor Marr, a Redfin deputy chief economist, home prices have passed their peak. Many homes are less valuable now than they were just a few months ago. However, homes are still more valuable now than three years ago, and Marr expects them to remain that way.
“The impact to housing depends largely on the severity of the recession. Unemployment increasing sharply—which hasn’t happened yet and isn’t expected to happen—would put an additional strain on demand because people will have less money. But if the recession is mild, mortgage rates could fall and housing demand wouldn’t slow down further,” Marr said in a June 1 Redfin news release.
Places like Sacramento, California, and Boise, Idaho, which saw big demand booms during the pandemic, are expected to see prices decline year-over-year in case of a recession, Marr said.
Expensive metros and places like the Bay Area, which have a lot of tech workers, might also see a fall in home prices, he added.