Home prices in the United States, which are showing signs of cooling following a pandemic-recovery spike, are now expected to rise at a slower rate than previously predicted, according to real estate marketplace firm Zillow.
Not only is the latest prediction a major downward revision of the company’s earlier estimate, it also signifies a major deceleration from the 20.4 percent price appreciation seen over the past year. The reason for the company’s downward revision of home price growth is the cooling housing market.
“It will take time to confirm, but for now the trend appears to show that the market passed an inflection point for home values between April and May, transitioning from ever-hotter to somewhat-cooler price growth. This deceleration is a clear signal that buyers are dialing back their demand for homes in the face of daunting affordability challenges,” Zillow said in the June report.
Multiple other market experts are also predicting an appreciation in home prices in 2023. CoreLogic forecasts a 5.6 percent price growth over the coming year. Mortgage Bankers Association expects home prices to rise by 3.1 percent and Fannie May by 3.2 percent.
Impending RecessionA major factor that could severely dent the prospects of home price appreciation is an economic recession. If the United States slips into a recession, Moody’s Analytics calculates national home prices will fall by 5 percent over the coming year, with significantly overvalued regional housing markets seeing price declines of up to 20 percent.
According to Taylor Marr, a Redfin deputy chief economist, home prices have passed their peak. Many homes are less valuable now than they were just a few months ago. However, homes are still more valuable now than three years ago, and Marr expects them to remain that way.
Places like Sacramento, California, and Boise, Idaho, which saw big demand booms during the pandemic, are expected to see prices decline year-over-year in case of a recession, Marr said.
Expensive metros and places like the Bay Area, which have a lot of tech workers, might also see a fall in home prices, he added.