The average U.S. home value dipped 0.1% in July, the first monthly decline in a decade. A Zillow economist says that while the drop is surprising, it points to a much-needed rebalancing in the housing market.
According to Zillow, the nation's typical home value is up 16% year over year and 44.5% since July 2019, but the slight drop in July will give potential buyers time and options as the housing market rebalances.
"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," said Zillow Chief Economist Skylar Olsen. "This slowdown is about discouraged buyers pulling back after the affordability shock from higher rates. As prices soften, many will renew their interest, and we will continue our progress back to 'normal.' 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."
According to Zillow's latest market report, home prices now stand at an average of $357,107. Home values measured by the company fell from June to July in 30 of the 50 largest metro areas, an increase from 13 the previous month.
The digital realtor’s home value index shows largest monthly home value declines were in California, in San Jose (-4.5%) and San Francisco (-2.8%) — the nation's most expensive major markets — followed by Phoenix (-2.8%), and Austin, Texas (-2.7%), which saw the most extreme growth over the pandemic. Values rose the most since June in Miami (1.5%), Richmond, Va. (1%), and Memphis, Tenn. (0.9%), although monthly growth has decelerated in these markets, according to Zillow.
The company's analysts said potential homebuyers have a better chance of seeing price cuts as listings' median days to pending jumped by two days in July to 10 — still nearly two weeks less than in July 2019.
Among major metros, typical time on market is rising fastest in Austin, Phoenix, and San Jose. A wide swath of sellers are adjusting pricing to meet buyers' expectations, as the share of listings with a price cut grew to 18.6% in July, a few percentage points higher than in July 2019.
Homes lingering on the market are also driving for-sale inventory up at a fast clip. Inventory is up 5.1% on a monthly basis, yet new inventory fell 13.6% month over month in July. Compared to July 2019, 15.5% fewer new listings came on the market. This new inventory figure does not include new construction, so it represents current homeowners deciding not to list their homes, the company said.
Total inventory, while still rising quickly, remains 43.5% below July 2019, leading Zillow economists to predict that home prices will not drop significantly.
"Inventory — the pool of homes available during a given window — is very responsive to easing demand and slowing sales, this year posting the largest month-over-month seasonal increases for any May, June, or July ever recorded," Olsen said. "The flow of homes into the market, however, is slowing. High interest rates are likely keeping current homeowners from deciding to list, as they compare their current rate — and home — against what can be found on the market, keeping inventory far below pre-pandemic norms despite the slowdown in sales."
