Where 2023 home prices are headed in your local housing market, according to Zillow’s revised forecast

Of course, just weeks later, the pandemic housing boom began to fizzle out. Every forecast since, Zillow cut its 12-month home price outlook. In April, Zillow revised it to 14.9%. In May, it was adjusted down to 11.6%. In July, it was adjusted down to 7.8%. In August, it was adjusted down to 2.4%. In September, it was adjusted down to 1.2%.

However, Zillow this week stopped short of revising its 12-month outlook downward. Over the coming 12 months, Zillow now expects US home values ​​to rise 1.4%.

When a company like Zillow says the “U.S. housing market” or “U.S. home prices,”[ads1]; it’s talking about an overall view of the country. In each regional housing market – heck, in each neighborhood – results can vary significantly. To better understand Zillow’s forecast, let’s dig into the data for regional housing markets. We’ll start by looking at what happened to home values ​​this summer, and then we’ll dig into Zillow’s regional forecasts.

Back in May, Moody’s Analytics Chief Economist Mark Zandi said Fortune that rising mortgage rates combined with “overvalued” home prices would push the US housing market into a housing correction. A housing correction is a period where the US housing market – which was priced at 3% mortgage rates – would work towards equilibrium. In all markets, this will lead to a sharp decline in housing sales. It would also, Zandi said, put frothy markets at risk of home price corrections.

That’s exactly what we saw this summer: Home sales plummeted across the country, and frothy markets in the western half of the country also saw home prices fall.

According to Zillow, 117 regional markets (see chart above) saw a decline in home values ​​between May and August. Of these, 36 markets had a decline of more than 3%. For the most part, these markets fell into one of two camps. Either they’re frothy boomtowns—like Austin (down 7.4%) and Boise (down 5.3%)—or they’re high-cost tech hubs. Foaming markets simply saw home values ​​become detached from local fundamentals. Markets such as Seattle (down 3.8%) and San Francisco (down 7.8%) are particularly sensitive to interest rates. Not only are high interest rates deterring buyers from high-end homes in San Francisco and Seattle, but they are also having an acute impact on employment in the technology sector.

“Across the country, affordability challenges have pushed potential buyers to the sidelines. Of course, this demand destruction has been more pronounced in some markets than others. Markets with the highest prices a year ago saw disproportionately greater declines in active demand in the 12 months that followed” , Zillow researchers write.

While 117 markets saw declining home values ​​this summer, another 779 markets saw rising home values. In East Coast markets such as Miami (up 4.1%) and Myrtle Beach, SC (up 4.5%), those gains were quite strong. Simply put: This is not a one-size-fits-all decline.

Through the last three months of 2022, Zillow expects the house price correction to continue in western housing markets, albeit at a milder pace. Between May and August, markets like Phoenix and Salt Lake City saw home values ​​drop by 4.4% and 7.1%, respectively. Between late September and late December (see chart above), Zillow expects home values ​​to fall 2% in Phoenix and remain flat in Salt Lake City.

In total, Zillow expects home values ​​to fall in 118 regional markets in the final three months of 2022. It expects 747 markets to have rising home values ​​and 29 markets to remain flat.

Heading into 2023, Zillow predicts that the home price correction will slow down in some markets while picking up elsewhere.

In markets like Boise and Phoenix, which saw sharp home price corrections this summer, Zillow expects prices to rise slightly in 2023: Over the next 12 months, Zillow expects home values ​​to rise 4.3% in Boise and 1.7% in Phoenix.

Nationally, Zillow expects 271 markets to show declining home values ​​between September 2022 and September 2023 – while 607 markets have rising home values, and 19 markets remain flat.

Why does Zillow think the home price correction won’t go national? It boils down to a dense supply.

“A decline in demand has pushed prices down, but while the housing market is nowhere near as tight as it was in the past, a lack of pre-sale listings is providing some support for prices against further declines,” write Zillow researchers. “Active for-sale inventory rose steadily throughout the spring and summer, but remains nearly 40% below pre-pandemic levels.”

High mortgage interest rates have not only led to fewer home buyers, it has also put some sellers on the sidelines. Some sellers refuse to lower the price. While others are not keen to give up their fixed mortgage rate of 2% or 3%. Industry insiders call the phenomenon the “lock-in effect”.

“This dynamic is in contrast to previous housing market downturns that led to price declines, and persistently tight supply can insulate the market from a significant price correction, even if demand has fallen. For example, in the Great Recession, home value declines were accompanied/underpinned by an increase in new listings, including many difficult sales,” Zillow researchers write.

Let’s be clear: Zillow remains on the optimistic side.

A growing chorus of research firms and banks are predicting the sharpest house price declines yet to come. It includes firms such as Goldman Sachs, Wells Fargo, Morgan Stanley, Moody’s Analytics, Capital Economics, Zonda, Zelman & Associates, Fannie Mae and John Burns Real Estate Consulting.

“The longer that [mortgage] prices remain high, our view is that housing is going to continue to feel that and have this reset mode. And the reasonable reset mechanism right now that needs to happen is on [home] prices. And then there are many markets across the country where we predict house prices will fall by double digits, says Rick Palacios Jr., head of research at John Burns Real Estate Consulting. Fortune.

Only CoreLogic and the Mortgage Bankers Association agree with Zillow that we won’t see a year-over-year decline in US home prices in 2023.

Do you want to stay up to date on the US housing market? Follow me on Twitter at @NewsLambert.

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