Home Values Take a Dip in September: Is This the Start of a New Trend?

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Home values across the United States saw a slight decline in September, according to the most recent market report from Zillow®. This comes as potential homebuyers grapple with the highest mortgage rates seen in over two decades.

“Mortgage rates nearing 8% are starting to slow down the real estate market, as many buyers find themselves priced out,” stated Jeff Tucker, a senior economist at Zillow. “While desirable properties are still selling quickly, buyer competition is waning due to the dual impact of rising mortgage rates and the typical autumn slowdown.”

From August to September, U.S. home values fell by 0.1%, a decrease far smaller than the 0.8% drop recorded in September 2022. However, any dip in values during this period is unusual. Between 2015 and 2019, monthly growth in September typically ranged from 0.1% to 0.4%.

The average home value now sits at $350,091 nationally, a 2% increase from last year. Out of the country’s 50 largest metropolitan areas, 31 have seen home values rise over the past year.

Affordable markets, such as Hartford, Milwaukee, Providence, and Virginia Beach, have seen the strongest annual home value appreciation. In contrast, former pandemic hotspots like Austin, Las Vegas, Phoenix, San Antonio, and New Orleans have experienced the steepest declines.

One of the factors that has hampered the market for over a year is a lack of new inventory. However, some homeowners may no longer be able to delay selling, potentially easing the impact of “rate lock” on their decision-making. Rate lock refers to the reluctance of homeowners to sell because their existing mortgages have lower interest rates than those currently available.

Despite rising mortgage rates, the supply of new listings is beginning to align more closely with typical seasonal trends. Compared to 2019, new listings in September were down by almost 18%, an improvement from deficits of 20% and 27% in August and July, respectively.

As we move deeper into fall, competition among home buyers is easing. Median time on the market before a listing goes pending is now 15 days, two days longer than in August, but still significantly faster than pre-pandemic times.

The Zillow rental market report reveals that rents are still slowly climbing, with annual growth reported at 3.2%, slightly slower than the pre-pandemic norm of around 4%.

All in all, the latest data from Zillow suggest that the real estate market may be entering a new phase. The coming months will reveal whether this is a temporary blip or the start of a longer-term trend.

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