HUD Articles

After record-breaking pandemic-era speed and price growth during 2021 and 2022, the housing market has largely settled down and avoided a crash in prices, but certain challenges remain. 

According to a new report by Zillow, home values have returned to growing at pre-pandemic rates, a trend that Zillow expects to continue; rent has also returned to an acceptable growth level. Buyers are still finding a costly and competitive market, but calmer, making it easier to plan and budget for. 

However, sellers continue to sit on the sidelines, holding on to low mortgage rates secured during the pandemic before the Fed started to raise rates again. And while rates could tick down over time, the issue of affordability, which has grown worse over the past few years, is unlikely to significantly improve. 

"The housing market is stabilizing after the turbulence of the pandemic, but the effects will be with us for a long time," said Zillow Senior Economist Jeff Tucker. "Price appreciation is back to normal after a short reset, but that means buyers still face serious cost challenges and competition, especially for the most affordable houses and in less expensive markets." 

While Zillow's economists were confident that fundamentals would keep prices resilient, the sheer force of the pandemic housing boom caused others to project an equally painful comedown to follow. Those projections have not come to pass. At the start of this year, Zillow's forecast for 2023 home values called for a 0.7% decline. Now, Zillow expects 5.5% growth in 2023 — roughly in line with a normal year before records were shattered during the pandemic. 

Home values fell in the second half of last year, but the same low mortgage rates that supercharged pandemic demand for purchases and refinances also put a floor under how far home values could fall. Existing homeowners have largely chosen to stay put rather than purchase another home with a much higher mortgage rate, which would cost hundreds of dollars more each month.  

The resulting decline in supply has been more significant than the pullback in demand. Mortgage rates could tick down in the long term if inflation continues to recede, but they almost certainly won't return to the historic lows seen during the pandemic. 

And more bad news for those still working to save for a home, the rise in prices and mortgage rates have essentially doubled the cost of a mortgage from $875 in 2019 to $1,8000 today. 

Competition for the few homes listed is high, and home values have once again been growing at a roughly normal pace historically. Cost pressures and a lack of choices for buyers have dragged down sales. Zillow forecasts 4.2 million existing home sales in 2023, which would be the lowest level since 2010. However new construction is helping fill the gap, as developers have recognized this opportunity and accelerated their speed in recent months. 

Renters who have dealt with massive price hikes and volatile markets should appreciate a return to normal growth as well. Tucker called rent growth "perfectly average" in Zillow's latest rent report, posting 4.1% year over year growth and a monthly increase of 0.6%—both right in line with pre-pandemic trends. 

So, what should buyers expect going forward? Competition and price growth should start easing up as they typically do this time of year after the typically hot summer buying season comes to a close as school begins. Also, more normal, predictable growth in rents and home prices will make it easier for those considering new mortgages to budget and plan. 

More existing homes could be on their way. In a new Zillow survey, 23% of current homeowners said they are considering selling their home in the next three years or currently have it up for sale. That's compared to just 15% last year. 

Author: Kyle G. Horst