Despite losing some momentum over the last three months, the U.S. housing market is still steaming forward in many markets. While appreciation rates are slowing, inventory is still extremely tight and prices continue to rise. Furthermore, with interest rates going up, the amount of house that buyers can get for their bucks is falling, making the buying process even harder. Although it seems like this could be the end of the historic pandemic housing boom, Zillow economists say the current housing boom has “at least another year to run.”
In a forecast published in May 2022, Zillow did downgrade its outlook for the housing market. The firm predicted U.S. home prices will climb nationally by 11.6 percent, down from the April prediction of 14.9 percent, but it is a rate still more than double the average rate of appreciation from 1987 to 2022.
In March, Zillow economists were predicting home prices would rise nearly 18 percent over the next 12 months. The economists wrote, “These downwardly revised projections would still represent a very strong housing market in the coming year…. [Since 2000], annual growth has only exceeded the current year-ahead projection of 11.6 percent during this recent run of record-breaking growth, and during a several-month stretch in 2005.”
Zillow said it had to revise the projection downward because mortgage rates are rising along with inventory, and home sales rates have been slowing. The team expects the housing market to return to “pre-pandemic, 2019 norms – at least in terms of inventory and the share of purchases made by first-time homebuyers – by 2024.”
Although Zillow is still bullish on the U.S. housing market, other economists say they do not expect the rates of appreciation Zillow economists are predicting.
For example, CoreLogic economists recently predicted that U.S. home prices would rise just under 6 percent over the next 12 months, which would mean that the market would return to a historically normal rate of growth by the end of this year.
Moody’s analysts declined to predict exactly when the market would return to normal, but they did offer a sobering analysis on the status of overvalued markets across the country. Moody’s Analytics told Fortune that 96 percent of regional housing markets are “overvalued relative to local incomes.”
The Dallas Fed agreed, noting that this is the first time since the early 2000s that the national housing market has “become detached from the fundamentals.”