US home values declined for the first time in a decade last month as a mounting number of experts warn about a housing recession.
Home valuations fell 0.1% in July compared to the previous month, according to a recent report published by online marketplace Zillow. The downtick marked the first drop in Zillow’s Home Value Index since 2012.
The pandemic-era real estate boom has cooled considerably as two years of price increases and sky-high mortgage rates result in “diminished” purchasing power for would-be buyers, according to the firm.
“Home values flattening so quickly after recent record growth might surprise, but it’s a badly needed rebalancing that gives home buyers more options, more time to shop and more negotiating power,” Zillow chief economic Skylar Olsen said.
“This slowdown is about discouraged buyers pulling back after the affordability shock from higher rates,” Olsen added. “As prices soften, many will renew their interest, and we will continue our progress back to ‘normal.’”
The 0.1% decline in home prices translated to a $366 price decline for the typical US home last month, according to Zillow. The average price for homes in July was $357,107.
The data comes as new home sales tumbled 12.6% to a seasonally adjusted annual rate of 511,000 units last month, the lowest level since January 2016. June’s sales pace was revised down to 585,000 units from the previously reported 590,000 units.
The report found that home values sank in 30 of the 50 largest metro areas – with the largest declines occurring in San Jose, Calif., and San Francisco.
While prices declined month-over-month, they are still up 16% compared to the same month a year earlier and 44.5% higher since July 2019, according to Zillow’s index.
“With buyers ready in the wings once confidence returns, homeowners can expect to keep the majority of the equity gains they’ve seen in the last two years,” Olsen added.
The price declines could be an indication that prospective homebuyers will experience some relief while conducting their searches in the months ahead. But the decreases also point to softness in the market as the Federal Reserve tightens monetary policy.
In the minutes from the Federal Open Market Committee’s July meeting, officials said “housing activity had weakened notably.” They predicted the “slowdown in housing activity would continue.”
As The Post reported, a separate study by real estate firm RedFin noted that home sellers are increasingly slashing their asking prices in “pandemic homebuying boomtowns,” where prices had spiked over the last two years.
Mortgage rates have nearly doubled — to 5.13% for a 30-year loan, according to Freddie Mac — since January as the market adjusts to several sharp Fed rate hikes. Aside from the affordability crunch facing homebuyers, builders are contending with higher-than-normal construction expenses as well as dwindling demand.
The deteriorating conditions led the National Association of Home Builders to declare a full-blown housing recession earlier this month following eight straight months of declining builder confidence.
Credit rating agency Fitch also shared a pessimistic view, warning in a note that a “severe downturn” in the US housing market was now “possible.” The agency shared that prices could fall by up to 15% during a major slump, alongside a 30% decline in housing activity.