What do New Orleans, Austin, San Antonio, Denver, and Dallas all have in common? These cities experienced the most significant decreases in home values in August compared to the previous month, among the twelve cities that saw a decline, according to an analysis conducted by Zillow, a real estate platform.
When compared to the same time last year, Austin, New Orleans, Phoenix, Las Vegas, and San Francisco saw the most significant declines in home values. On the flip side, Hartford, Buffalo, San Diego, Cleveland, and Providence were the cities where home values increased the most in August compared to the previous month, according to the analysis. Taking a yearly view, Hartford, Milwaukee, Virginia Beach, Philadelphia, and Providence showed the most substantial increases in home values.
While overall, home values increased by a modest 0.2 percent, this represents a cooling off period following what Zillow described as “red-hot” gains in the previous three months. Zillow revised its home value index forecast downward, projecting an increase of just under 5 percent over the next year, compared to last month’s projection of 6.5 percent.
Jeff Tucker, a senior economist at Zillow, noted, “After the peak in housing market demand and activity in May and June, conditions have relaxed in the later part of the summer. Not only did price growth slow down, but July’s closed sales data showed that fewer homes were sold above their list price (40.4% versus 41.5% in June).”
Part of this cooling trend can be attributed to an increase in new listings entering the market, as revealed by Zillow’s analysis earlier this week. In August, there was a 4 percent rise compared to the previous month, marking the highest two-month increase. However, it’s important to note that inventory levels remain significantly below pre-pandemic levels, as reported by the real estate platform.
Zillow stated, “Inventory conditions remain very tight. Nevertheless, this unusual late-summer increase in supply helped alleviate market conditions somewhat, leading to a cooler outlook for home values.” Additionally, the persistently elevated mortgage rates and tight inventory are expected to continue limiting sales volume in the coming months.
This analysis is part of a growing body of evidence suggesting that the housing market is grappling with challenges such as soaring prices, limited supply, and increasing mortgage rates. These issues have been exacerbated by the Federal Reserve’s decision to raise interest rates in March 2022 to combat rising inflation.
While the Fed decided to hold off on further rate hikes, maintaining the current range of 5.25 to 5.5 percent, it left the door open for at least one more hike later in the year. High-interest rates are expected to continue putting pressure on mortgage rates, which have now surpassed 7 percent, the highest they’ve been in two decades.
As a result of these high rates, housing demand is slowing down, and homebuilders are feeling the impact. Builder sentiment declined for the first time in several months, and construction levels have dropped to a three-year low, further exacerbating the existing shortage of housing supply, according to Sam Khater, Freddie Mac’s chief economist.
Earlier in the week, the National Association of Realtors reported that the number of homes available for sale had declined by 14 percent compared to the previous year. Overall, home sales decreased by 0.7 percent in August, plummeting more than 15 percent compared to the same period a year ago, with sales totaling around 4 million.