Zillow’s second quarter Real Estate Market Reports , released today, show home values increased 2.4% from the first quarter of 2013 to the second quarter of 2013 to $161,100 (Figure 1). This quarter marks the largest annual gain since August 2006 and largest quarterly gain since the fourth quarter of 2005. On an annual basis, the Zillow Home Value Index (ZHVI) rose 5.8% from June 2012 levels (Figure 2). Monthly appreciation remains strong with national home values growing by 0.9% from May. Not only did the pace of home value appreciation quicken in the second quarter, but the recovery also fully took hold nationwide. Markets in some areas of the Northeast, Midwest and Southeastern U.S., such as Atlanta, Chicago and St. Louis, that had previously been slow to turn the corner began to appreciate, which helped boost the overall national market. All of the top 30 largest metro areas covered by Zillow experienced annual appreciation in home values as of the end of the second quarter, and all have hit their bottom.
According to the Zillow Home Value Forecast (ZHVF), we expect national home values to increase 5% over the next year (June 2013 to June 2014). Of the 257 markets covered by the Zillow Home Value Forecast, 241 markets are expected to see increases in home values over the next year, with the largest increases expected in the Sacramento metro (18.9%) and the Riverside metro (16.6%). Many California markets follow closely at the top of the list of markets expected to see the highest home value appreciation over the next year. According to the ZHVF, 234 markets (91%) have already hit a bottom in home values, and another 13 are expected to hit a bottom by June 2014.
The Zillow Real Estate Market Reports cover 389 metropolitan and micropolitan areas (metros) of which 259 showed quarterly home value appreciation. Three metros remained flat, while 127 metros show home values losses. Approximately 72% of the metros covered by the Real Estate Market Reports posted annual increases in home values – a sign of the national housing recovery continuing to take hold. Among the largest metros, Sacramento showed the largest annual increase with home values rising 29.5% from the second quarter of 2012 to the second quarter of 2013. We do believe that appreciation rates will return to more sustainable levels over the next year or two. Overall, national home values are back to August 2004 levels, down 17.2% since their peak in May 2007. A table of the top 30 metros can be found at the end of this report.
The Zillow Rent Index (ZRI) covers 496 metro areas, and 57% of those metros reported annual increases in rents in June. As a point of comparison, nearly 72% of the metro areas covered by the ZHVI experienced annual home value increases. Nationally, rents increased 1.6% in June from year-ago levels, denoting a slowing. This is a significant annual decline in the rental appreciation rate from its peak appreciation of 6.2% nationally in September 2012. This development combined with rising home values is another contributor to investors exiting some markets as they had often bought for-sale inventory to convert them to for-rent properties. Markets that continue to see extremely strong year-over-year rent increases include Cincinnati (10.5%), Denver (5.5%) and Boston (4.3%).
The rate of homes foreclosed continued to decline in June with 4.96 out of every 10,000 homes in the country being liquidated through foreclosure. Nationally, foreclosure resales remain low, making up 9.53% of all sales in June, down 3.6 percentage points from the second quarter of 2012, underlining the limited inventory of foreclosure resales. For-sale inventory levels remain constrained, with many metro areas across the country having fewer for-sale listings available in June compared with last year, although constraints are beginning to ease. The lack of foreclosure resales and normal for-sale inventory in many markets is contributing to home value appreciation. In the second half of the year we expect continued easing with investors starting to slowly exit markets as home values continue to climb.
With the housing recovery in full force, many homeowners are feeling a sense of whiplash after years of depreciation, but this kind of market behavior won’t last. Investors are starting to pull out of some markets – as home values are climbing higher – and regular buyers are coming back, now that they can be competitive again. Although, some consumers are starting to feel the decrease in purchasing power due to higher mortgage rates. More for-sale inventory is slowly but surely coming on line, as homes are freed from negative equity and more homeowners are deciding to sell. Both of these developments will contribute to slowdowns in appreciation toward more sustainable rates. In some overheated markets, rapid home value increases coupled with rising mortgage rates will lead to housing prices and financing costs outpacing local income growth, which will also contribute to a moderation of the market. The U.S. housing market as a whole is currently not experiencing a bubble, but in many places it may feel like one, with some markets (Sacramento, Las Vegas, San Francisco) experiencing annual home value appreciation approaching 30 percent.