What’s up everyone
Well, it finally happened. Zillow has revised their housing forecast once again, but this time they are taking a huge hit.
Last month, they forecasted home value growth of 7.8% for the next 12 months. Currently, they show a 16% price appreciation. So what are they now saying for the future?
“Zillow forecasts 2.4% home value growth through the end of July 2023. Zillow’s outlook for home prices has been revised down significantly due to a sharp downturn in July.”
This is the fifth downward revision since March.
So, we’ll get into why they’ve now downgraded their forecast to meet the other industry insiders and what’s happening across the board in the housing market.
So lets dive right in.
So if we look at the article Zillow posted on August 18th, they say that “The large revision is driven by the quickly changing observed market conditions and an update to the forecast’s methodology.”
So, here’s what they are doing differently.
“Zillow’s home value forecast now incorporates the share of for-sale listings that receive a price cut into its calculation.
This share has seen a sharp increase in recent months, as homesellers adjust their strategies amid changing market conditions. “
*Im not sure why should this make a difference if they are going off the sold price as far as appreciation year over year.
“A weaker outlook for home sales also factors heavily into the lower forecast for home value appreciation.”
Zillow’s now forecasting 5.3 million existing home sales in 2022, a 14.1% decrease from 2021.
So, basically they are now taking into account what is really happening in the current market rather than going off a certain narrative.
Take a look at the footnote at the bottom of the article.
Home value annual appreciation in the July 2022 Zillow forecast represents the raw version of the Zillow Home Value Index, while the forecasts use expectations for raw Zillow Home Value Forecast.
All previous Zillow forecasts have used the smoothed and seasonally adjusted versions of the Zillow Home Value Index and Zillow Home Value Forecast.
So we have RAW vs SMOOTHED AND SEASONALLY.
Lets see what smoothed and seasonally means.
The smoothed and seasonally adjusted version of the ZHVI smooths home value changes over the trailing three months, which shows a cleaner trend line without the month-to-month spikes of the raw series.
I’m still not sure what “smooths home value changes” means.
Zillow Research has chosen to present the raw version in its July monthly report and forecast during this period of unparalleled volatility.
I feel like its back in the day when people used to look at Zestimates to see what their homes are worth and we (as in us realtors ) had to constantly educated our sellers that Zillow had never been in their house and the zestimates were way off. They didn’t take into account if your kitchen was renovated or if everything was original. It was always a point of frustration to us as the numbers very rarely ever matched.
I actually made my very first video 2 years ago on ZEstimates. Its super embarrassing and if you want a laugh you can check it out.
Back to Zillow;
“For reference, the smoothed and seasonally adjusted version of ZHVI shows 18.2% growth in July. The smoothed, seasonally adjusted forecast through July 2023 was 2.7%, and the June forecast for the next 12 months was 7%. “
So just to keep things straight-
The smooth and seasonally rate for growth in July is 18.2%. The raw version is 16%
The smooth and seasonally adjusted forecast through July 2023 is 2.7%. The raw version is 2.4%
The smooth and seasonally June forecast for the next 12 months was 7%. The raw version is 6.9%.
I don’t know about you guys, but all this really tells me is that Zillow seems to be making excuses for their unrealistic previous forecasts.
And I think this is because the July housing date was much worse than they expected.
So lets take a look. Lance Lambert wrote an article in Fortune about this very subject and sites the current stats.
July saw the largest ever (dating back to 2016) uptick in total inventory on realtor.com.
On a year-over-year basis, new home sales and existing home sales are now down 17.4% and 20.2%, respectively.
At the same time, single-family housing starts have fallen 18.5% and mortgage purchase applications are down 18.4%.
Some of this has to do with summer slow downs in general, but we can’t deny the changing housing market.
According to the National Association of Realtors housing-affordability index, which factors in family incomes, mortgage rates and the sales price for existing single-family homes, fell to 98.5 in June, the lowest since 1989.
So whats happening right now in the housing market.
Lambert uses Zillow’s data to show the change in home values between June and July of this year.
According to Zillow, 30 of the nation’s 50 largest housing markets saw month-over-month home price declines in July. That includes a 4.5% home price dip in San Jose. Not too far behind are Phoenix (-2.8%), San Francisco (-2.8%), Austin (-2.7%), and Sacramento (-2.5%).
Looks like the DC area has a price decline of 0.5 over the last month. This doesn’t surprise me because traditionally we always slow down at this point in the summer. That coupled with higher mortgage rates that out priced a lot of buyers, and some over zealous sellers that haven’t adjusted to the new changing market, I can definitely see how this would cause some price declines.
Rick Palacios Jr., head of research at John Burns Real Estate Consulting, tells Fortune “You could make a strong case that in a lot of housing markets the last 10% of home price appreciation was purely aspirational and irrational, and that’ll come off the top really fast,” “That’s exactly what we’re all seeing right now.”
I don’t disagree. The spring of 2021 was the most insane market I’ve ever witnessed in 18 1/2 years. For those prices to be immediately cut down by 10% makes sense.
But what I find interesting is that even with all of the bad news out there and the price reductions I’m seeing in our market, The Mortgage Bankers Association, Fannie Mae, Freddie Mac, and CoreLogic all predict a low-single-digit home price increase over the coming year.
Increase being the key word. So they all still feel like home values will appreciate over the next year, even if just a little.
Now, as I always say, real estate is local. What’s happening here in the DC area is not the same as Boise or Austin.
According to Fortunes article, The regional housing markets getting hit the hardest by the slowdown fall into one of two groups.
The first is high-cost tech hubs. This grouping includes markets like San Jose, San Francisco, and Seattle.
The second group includes overvalued markets like Austin, Boise, Phoenix, and Las Vegas. The Pandemic Housing Boom has pushed home prices in markets like Phoenix and Boise far beyond what local incomes would historically support.
Historically speaking, when a housing cycle “turns over,” it’s the “overvalued” housing markets that are at the highest risk of home price corrections.
What are you seeing where you live? Comment below and tell us where you live. Are values coming down? Is inventory up?