Home Values Continue to Rise; May Marks Third Consecutive Month of Increases

Zillow’s May Real Estate Market Reports, released today, show that home values increased 0.5 percent to $148,100 from April to May (Figure 1), marking the third consecutive month of strong monthly appreciation. Compared to May 2011, home values are still down by 0.9 percent (Figure 2). Home values across the nation are experiencing upward pressure due to low for-sale inventory with many buyers facing multiple offer situations. Inventory shortages are being fueled both by negative equity which is keeping people in their homes and by rational seller behavior at a market bottom. According to Zillow’s first quarter Negative Equity Report, 31.4 percent of homeowners with a mortgage are underwater. A more in-depth analysis of the impact of negative equity on inventory shortages can be found here. In conjunction with rising home values, rents also rose significantly in April, appreciating by 1.8 percent from April to May. On an annual basis, rents across the nation are up by 4.6 percent (Figure 3).

Home Values

The Zillow Real Estate Market Reports cover 166 metropolitan areas (metros) of which 86 showed monthly home value appreciation. Among the top 30 metros, 23 experienced home value appreciation. The largest monthly decline among the top 30 metros took place in St. Louis, where home values fell by 0.4 percent from April to May. Leading the pack on the appreciation side are, once again, Miami-Fort Lauderdale and Phoenix, which experienced 2.2 percent and 1.9 percent home value appreciation, respectively. Overall, national home values are down 23.5 percent since their peak in April 2007.


The Zillow Rent Index (ZRI) covers 344 metropolitan areas and shows year-over-year gains for nearly 69 percent of the metropolitan areas covered by the ZRI. The rental market remains strong, especially in markets that continue to experience consistent home value declines. For example, Chicago metro rents increased 9.1 percent over the past year. Other metropolitan areas that saw extremely strong year-over-year rent appreciation include Philadelphia (13.1 percent), Baltimore (10.4 percent), and San Francisco (8.8 percent).


The rate of homes foreclosed continues to decline in May with 6.3 out of every 10,000 homes in the country being liquidated. Nationally, foreclosure re-sales slowed a bit, making up 17.3 percent of all sales in May (Figure 4). The slowing of foreclosure re-sales is also contributing to home value appreciation, as these are usually sold at a discount and influence surrounding non-distressed sales.

Price Tiers

Throughout the housing recession, the bottom tier of homes in terms of value has performed worse than the top tier. This trend has been reversed in the last few months. The bottom tier is appreciating at a significantly higher monthly rate than the top tier. Figure 5 shows the spread between the top and bottom tiers and the reversal of fates in the recent months.


As the ZIP code-by-ZIP code recovery takes hold, with many metropolitan areas already having hit bottom, the national housing bottom and eventual recovery are falling into place. With some markets such as Phoenix and Miami exhibiting distinct signs of a V-shaped recovery, we are re-evaluating what a national bottom in home values might look like. As noted in our research brief on the connection between negative equity and inventory levels, instead of a long, flat bottom with price appreciation constrained by weak demand and elevated foreclosures, we might end up in an environment in which constrained supply (due to negative equity), together with robust demand from investors and first-time home buyers (not weighed down by negative equity), combine to create cycles of home value spikes followed by cooling periods. These cooling periods will be created once local home values have increased enough to free some homeowners from negative equity at which point some of these “re-surfacing” homeowners attempt to sell their homes, thus creating additional supply which, in turn, tempers price appreciation.

A PDF version of this report can be downloaded here.