Following their February call that U.S. home prices had hit bottom, Zillow economists proceeded to raise their home price forecast every single month through August. At that point, Zillow predicted that U.S. home prices would climb 6.5% over the next 12 months, which is just above the 5.5% annual increase that national home prices, as tracked by Case-Shiller, have averaged since 1975.
However, this week, Zillow economists issued a downward revision and predicted that U.S. home prices would instead rise 4.9% between August 2023 and August 2024.
"Zillow’s forecast of the nation’s typical home value was revised downward this month due to the anticipation of higher mortgage rates and a slight decrease in market tightness," wrote economists at Zillow.
In other words, Zillow economists are coming to terms with the fact that the resilient labor market is likely to translate into a longer than expected period of elevated interest rates. And that recent firming of rates—which saw the average 30-year fixed mortgage rate hit 7.30% on Tuesday—has taken some steam out of the 2023 U.S. housing market.
"August brought an unexpected late-summer uptick in the number of new for-sale listings entering the market. New listings increased by 4.0% from July to August, the first time in Zillow’s records in which the inflow of listings increased over that two-month span. To be clear, August’s new listings total—as well as total for-sale inventory—remains well below typical levels seen prior to the pandemic, and inventory conditions remain very tight. That said, this unusual late-summer supply uptick helped to ease market conditions some, causing our outlook for home values to cool," wrote Zillow economists.
View this interactive chart on Fortune.com
While Zillow economists expect national home prices to rise 4.9% over the coming 12 months, their forecast model predicts that 39 of the nation's 400 largest housing markets will see increases of 7% or greater over the next 12 months. (Last month that figure stood at 120 markets.)
While Zillow thinks U.S. home prices have bottomed—something that economists at CoreLogic and the AEI Housing Center also believe—not every firm agrees. Firms like Morgan Stanley and Moody's Analytics think U.S. home prices have a little more to give up, and it will happen between now and the end of 2024.
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