Economics

Will the Housing Slowdown Continue?

While home price gains have diminished in 2019, the slowdown may be starting to wane.

Robert Spendlove and Joseph Mayans Sep 27, 2019

The Story

Rising uncertainty and fears over a broad economic slowdown have sapped momentum from U.S. home price growth. In August, home values climbed a lackluster 4.9 percent from the year before – the weakest pace of growth since 2015. The cooldown in the housing market, however, should provide some relief as affordability issues have crimped high growth areas and kept many would-be buyers on the sidelines. This is especially true in the Western U.S. where populations have boomed and construction levels have lagged demand. Over the last 5 years, 4 of the top 5 markets for the highest home price growth were in the West. And each of the strongest states, Idaho, Nevada, Washington, Florida and Utah, experienced price increases in excess of 50 percent, versus a 36 percent rise nationwide. As of August, however, only 2 of the top 5, Idaho and Utah, had annual home price appreciation greater than the national average.

The top five states for home value appreciation over the last five years all experienced price gains of more than 50 percent. In the same time period, the national average was 36 percent.

top 5 states for home growth
Source: Zillow Research, Home Value Index

Growth in home values has declined in the U.S. and in many of the top markets. Idaho and Utah remain the top states in the nation for annual home price appreciation.

12 month percent change in home values
Source: Zillow Research, Home Value Index

Upward Pressure for Home Values

While home price gains have diminished in 2019, the slowdown may be starting to wane. Buyers are sensitive to interest rates, and the 30-year mortgage rate has fallen sharply over the past year from around 5 percent to under 4 percent. In its latest release, the Commerce Department reported sales of new homes jumped 18 percent from the year before, which was well-above expectations. With weakening global conditions poised to push U.S. long-term interest rates lower and the Federal Reserve pointing to another rate cut in 2019, mortgage rates could decline further. Another factor that could keep prices afloat is a lack of housing inventory. In August, the inventory of homes for sale in the U.S. declined 3.9 percent from the year before and the overall level of inventory was the lowest since Zillow started tracking the data in 2013. With a lack of housing supply on the market, sellers retain a key component of pricing power and may balk at additional price reductions.

In a sign of optimism, growth in new home sales jumped 18 percent from the year before in August. This comes as mortgage rates have declined to multi-year lows.

12 month percent change in new home sales
Source: U.S. Commerce Department

The inventory of homes for sale in the U.S. declined 3.9 percent in August from the year before. In the top markets, both Idaho and Washington experienced inventory declines of more than 10 percent.

12 month percent change in inventories
Source: Zillow Research, Home Value Index

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