In a bold prediction earlier this year, Zillow’s housing economists forecasted that U.S. home prices were set to rise, not just maintaining their value but climbing an additional 0.5% over the next 12 months. This prediction seemed to be vindicated as U.S. home prices, as tracked by the Zillow Home Value Index, began to ascend, even reaching new all-time highs. This surge in prices was largely driven by a tight inventory landscape, which managed to counteract the potential deterrent of rising mortgage rates.

Zillow has since revised its home price forecast upwards, now predicting a 6.5% increase in U.S. home prices between July 2023 and July 2024, a slight increase from the 6.3% increase predicted last month. For context, the U.S. home prices as tracked by Case-Shiller have averaged a 5.5% annual increase since 1975. This upward trend is attributed to the continuing scarcity of for-sale inventory, which is driving home prices up even as mortgage rates remain high.

Zillow Forecasts Continued U.S. Housing Market Surge

In a surprising turn of events, Zillow, a leading real estate database company, has recently adjusted its forecast for the U.S. housing market. Predicating a 6.5% rise in home prices from July 2023 to July 2024, the company has increased its previous prediction of a 6.3% increase. This new forecast is a testament to the resilience of the housing market, even in the face of increasing mortgage rates and a global pandemic.

A Resilient Housing Market Bounces Back

Earlier this year, Zillow’s housing economists had projected that U.S. home prices had hit rock bottom and would rise by a modest 0.5% over the next year. However, the market’s performance has surpassed these expectations. U.S. home prices as tracked by the Zillow Home Value Index have not only begun to climb again, but have also reached a new all-time high. This improvement has been driven by the tight inventory levels overpowering the adverse impact of the mortgage rate shock.

Limited Inventory Fuels Price Increase

The limited inventory of homes for sale continues to be a significant factor in the upward movement of home prices. As Zillow’s economists point out, July saw just over half as many homes listed for sale compared to the same month in 2019. Furthermore, there were 29% fewer new listings entering the market in July than the average for this time of year before the pandemic. This shortage has intensified competition for available homes, with homes going under contract in an average of 12 days – significantly faster than the norm in 2018 and 2019.

Nationwide Price Increases Expected

Zillow’s forecast doesn’t just predict a national increase in home prices. Their model anticipates that 120 of the nation’s 400 largest housing markets will experience increases of 7.0% or more over the next 12 months. These markets are spread across the country, from the West (Santa Maria, Calif.), South (Tampa), Midwest (Indianapolis), to the Northeast (Scranton, Pa.).

Not All Economists Agree

While Zillow, CoreLogic, and the AEI Housing Center believe U.S. home prices have bottomed out, not all firms share this view. Moody’s Analytics and Morgan Stanley, for instance, predict that U.S. home prices will continue to decline through the end of 2024.

Takeaways

Zillow’s revised forecast signals a robust housing market, with resilient home prices and limited inventory driving up competition among buyers. However, the divergence in views among economists suggests the need for potential homebuyers to keep a close eye on market trends and economic forecasts. The housing market remains unpredictable, particularly in the wake of a global pandemic and fluctuating economic conditions.