The housing market continues to cool down as we head into the fall season. According to the latest Zillow market report, buyers are finding slightly more selection, more price cuts, and a bit more time to evaluate a home before it goes under contract.
The Zillow Home Value Index (ZHVI) in the U.S. rose to $308,220 in September, up 1.6% from August. This marks the second consecutive slowdown after monthly appreciation peaked at 2% in July this year. Monthly home value appreciation slowed in 44 of the 50 largest U.S. metros, ranging from a low of 0.4% in San Jose and 3% appreciation in Raleigh.
Despite this moderate cooling, September marked the fourth-fastest monthly pace of appreciation and a record pace of yearly appreciation in Zillow’s data dating back to 2000. The typical U.S. home was worth 18.4% more in September 2021 than it was in September 2020, surpassing August’s record of 17.5% year-over-year appreciation. Annual appreciation hit double digits across all 50 major markets, ranging from an eye-watering 44.9% in Austin and 32.2% in Phoenix to a comparatively "sluggish" rate of 13.2% in New Orleans.
The inventory shortage is still heavily impacting much of the country, down 19.9% from this time last year and down 37.7% from 2019 levels. Still, this slow and incremental growth in inventory will help shift the scales ever so slightly in the buyers’ favor.
Inventory available for sale crept up 0.4% in August, which is a smaller gain than the previous four months, dating back to May 2021. However, this roughly matches pre-pandemic seasonal patterns in which inventory usually peaks in August or September. This is also the first month since July 2020 that the inventory deficit was below 20%.
Potential homebuyers are pumping the breaks after this summer, gradually slowing down market velocity. Homes are taking one day longer to sell than in August, with most homes transitioning to the pending stage after nine days on the market. This provides homebuyers a bit of relief, allowing them more time to search for a home and make an offer before they’re snatched up.
As homes stay on the market longer, a larger percentage of them are seeing price cuts. The share of homes listed on Zillow that saw a price cut before going under contract rose to 14.7% in September, up from just 7.9% in April.
Furthermore, a rental rebound echoed the price boom in August, according to the Zillow Observed Rent Index (ZORI). Monthly rent growth slowed to 1.3% in September, down from recent highs of 2% in July and 1.5% in August. In 39 of the 50 largest U.S. metros, rent growth slowed from August to September, and rent prices actually fell in Kansas City and San Francisco.
Typical U.S. rent took a dramatic leap over the past year, increasing from $213 to $1,888. The 12.9% annual increase is the highest in Zillow’s data records since 2015. Sun Belt destinations Tampa (25.7%), Las Vegas (25.7%) and Phoenix (25.6%) topped the list in rent growth. Rounding out the bottom are San Jose (4.9%), Minneapolis–-St. Paul (5.8%) and San Francisco (6%).
Looking to the future, Zillow economists predict 13.6% home value growth through September 2022, which is a stronger 12-month forecast compared to last month. This forecast is supported by slower inventory recovery, increased sales, and increased mortgage application activity. Meanwhile, existing home sales are expected to reach 6.04 million in 2021, up 7% from a strong 2020.
