Zillow now expects home value growth to reach 14.9% through March 2023, down from its previous estimate of 16.5% growth. What’s with the downgrade?
As the Federal Reserve has continued to increase mortgage rates over the last few months, online real estate portal and research firm Zillow on Wednesday issued a downward revision of anticipated home value growth and sales over the next several months, as homebuyers battle affordability.
Zillow now expects home value growth to reach 14.9 percent through March 2023, down from its February estimate of 16.5 percent growth. Likewise, in the next three months, Zillow anticipates home values to grow 5.5 percent, down from its previous estimate of 5.9 percent.
The real estate giant added that it expects existing-home sales to reach 6.09 million sales over the course of 2022, down from its previous forecast of 6.2 million existing-home sales throughout the year. If Zillow’s new forecast plays out, that number of existing-home sales would yield a 0.5 percent decline from total existing-home sales in 2021.
“Driving the downwardly revised forecast are affordability headwinds that have strengthened faster than expected, largely due to sharp increases in mortgage rates,” Zillow’s report reads. “Further risks to the outlook as well: Inventory levels remain near record lows, but have the potential to recover faster than anticipated, which could lower future price and sales volume projections.”
At the end of 2021, Fannie Mae predicted an average 30-year mortgage rate of 3.3 percent for 2022, while at the beginning of 2022, the Mortgage Bankers Association (MBA) predicted that the average 30-year fixed rate would increase to 4 percent. By the beginning of April, however, the 30-year fixed rate surged beyond 5 percent.
Despite the downward adjustments in its forecasts, Zillow noted that such figures would still represent a competitive market for buyers, with home value growth of 14.9 percent marking the highest-ever recorded by Zillow prior to June 2021 and 6.09 million existing home sales the second-highest total since 2006.
“What’s more, the labor market continues to be a bright spot for housing demand,” the report added, “with a very low national unemployment rate and higher nominal wages, though inflation is putting pressure on household budgets.”
Other research firms, meanwhile, have very different ideas about how much home prices may be set to grow in the coming year at this point. CoreLogic anticipates a deceleration in the home price growth rate to 5 percent, while the MBA says prices will likely increase 4.8 percent over the next year. Fannie Mae predicted home price growth of 11.2 percent in 2022 and 4.2 percent in 2023.