U.S. Home Values Post Big Gains, But Recovery is Uneven Among Markets

Posted by: Stan Humphries    Tags:      Posted date:  October 22, 2012  

Zillow’s third quarter Real Estate Market Reports, released today, show home values increased 1.3% from the second to the third quarter of 2012 to $153,800 (Figure 1). On an annual basis, the Zillow Home Value Index (ZHVI) rose 3.2% from September 2011 levels (Figure 2), adding to mounting evidence that the national housing market is experiencing a durable recovery. September also marks the eleventh consecutive month of home value appreciation, with this month showing 0.8 percent growth. While the national housing market is showing consistent signs of improvement, the recovery is uneven across the country. Some markets, such as Phoenix, Riverside and Miami are doing exceptionally well, while St. Louis and Atlanta are still faltering. Part of the strong home value appreciation we are seeing is driven by acute inventory shortages in many markets with foreclosures and foreclosure re-sales down and many people still locked up in negative equity, limiting overall supply.

According to the Zillow Home Value Forecast, we expect national home values to increase 1.7% over the next year (September 2012 to September 2013). Of the 253 markets covered by the Zillow Home Value Forecast (ZHVF), 181 markets are expected to see increases in home values over the next year, with the largest increases expected in the Phoenix metro (8.5%) and the Bakersfield metro (7.7%). 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, 183 markets (72%) have already hit a bottom in home values, and another 41 are expected to hit a bottom by September 2013. Among the markets expected to see a bottom within the next year are St. Louis (MO), Cleveland (OH), and Jacksonville (FL). The receding unemployment rate and continually low mortgage rates continue to translate into greater consumer confidence, higher household formation rates, and increased home sales. The increased housing demand, in turn, is stabilizing home values and spurring home builders to increase new housing starts (which have increased 34.8% from year-ago levels).

Home Values

The Zillow Real Estate Market Reports cover 366 metropolitan areas (metros) of which 168 showed quarterly home value appreciation. Seven metros remained flat, while 191 metros show home values losses. Half of the metros covered by the Real Estate Market Reports posted annual increases in home values. Among the largest metros, Phoenix showed the largest annual increase with home values rising 20.4% from the third quarter of 2011 to the third quarter of 2012.

Overall, national home values are back to April 2004 levels, down 20.6% since their peak in April 2007. From their peak in April 2007, home values fell 23.3% to the trough in home values in October 2011, and are now 3.5% above the trough level. An interactive chart of all metro regions can be found at the bottom of this report.


The Zillow Rent Index (ZRI) covers 310 metropolitan areas and 67% of those metros reported annual increases in rents in September. As a point of comparison, 50% of the metro areas covered by the ZHVI experienced annual home value increases. Nationally, rents increased 6% in September from year-ago levels and rent growth continues to be robust, fueled by the entry of foreclosed households into the rental market and increasing household formation itself (newly formed households often choosing to rent before buying). Markets that saw extremely strong year-over-year rent increases include Baltimore (10.7%), Chicago (10.7%), Philadelphia (8.2%), and San Francisco (8.0%).


The rate of homes foreclosed continued to decline in September with 5.7 out of every 10,000 homes in the country being liquidated. This is the lowest foreclosure pace we’ve seen since December 2007 when 5.5 out of every 10,000 homes were being liquidated. Nationally, foreclosure re-sales remain low, making up 13.4% of all sales in September, up from 13.3% in August, but well off of the high-water mark of almost 20% in March 2009 (Figure 4). The lack of foreclosure re-sales in many markets is contributing to home value appreciation, as investors are buying up the distressed and non-distressed inventory, especially on the lower end of the housing market squeezing out many buyers.


While the housing recovery has been hyper-local, we are now seeing a more bipolar market. Markets where we have seen inventory shortages and that have been extremely affordable due to steep declines in home values are seeing strong appreciation and are also forecasted to continue appreciating over the next year. However, there are other markets such as St. Louis and Atlanta, which are still experiencing home value declines and have so far not hit a bottom in home values. Going forward we do believe that unemployment, despite it having receded, and negative equity, which still remains high at more than 30% of mortgaged homeowners underwater, will remain risk factors. Nationally, we believe that the first part of the recovery will be relatively long and flat with home values oscillating up and down month-by-month.

In terms of supply, we will continue to see tight inventory in some markets, although this situation will normalize a bit next year as more sellers will enter the market (some freed from negative equity by home value appreciation) and more REOs will be released by banks. On the demand side, consumers are getting off the fence and investors remain very active in markets, like California, Phoenix and Florida (and, increasingly, Atlanta). Overall, half of the metros Zillow covers are seeing positive annual growth and this trend will continue going forward. The markets that have not reached a bottom will see home value depreciation slow over time until they too finally reach a bottom, almost all of which will do so within the next twelve months.

Further analysis can be downloaded here.

About the author
Stan Humphries
Stan is Zillow's Chief Economist. To learn more about Stan, click here.