Just when U.S. home values seem impossibly unaffordable, Zillow revised its forecast to reflect even higher prices to come. The company predicted that its national Zillow Home Value Index (ZHVI) will jump 6.5% from July 2023 through July 2024.
Home values surge in a tight market
Zillow credits several factors for driving home price growth over the next year. First, rising mortgage rates increase monthly payments for would-be homeowners in a market that has adapted to low mortgage rates. The average 30-year fixed rate mortgage reached 7.23% last week, the highest rate since the year 2000, according to data from Freddie Mac. The Federal Reserve Board meets again on September 20, and mortgage rates could hold steady or decline slightly if the Fed decides against another rate hike. Fed Chairman Jerome Powell, however, has indicated that he is prepared to raise rates if needed. The central bank raised the fed funds rate, a key overnight bank lending rate, by a quarter-percentage point, to a range of 5.25% to 5.50% as of the last Fed meeting in July.
It’s no secret that tight inventory is also driving up home values. Zillow forecasts that 2023 home sales will hit 4.2 million, representing a 17% decline from 2022. And when compared to pre-pandemic inventory, the picture looks even more discouraging for home buyers. This lack of available housing translates into faster sales; homes for sale in July 2023 went under contract in only 12 days, compared to about 22 days in 2019.
Forecasts can be wrong, of course. In fact, Kiplinger’s economic forecasting team is more bearish than Zillow, predicting that high mortgage rates will drive housing price declines over the next few months.
