Home Prices Kept Dropping in December Before Mortgage Rate Relief Arrived (December 2022 Market Report)
- The typical U.S. home value fell slightly from November to December (-0.2%), as high interest rates further discouraged home buyers. U.S. home values are still 8.4% higher than a year ago.
- Home values were lower than last December in Austin (-4.2%), San Francisco (-2.0%), Seattle (-0.6%), and San Jose (-0.0%).
- Active inventory climbed to a 15.9% year-over-year increase in December.
- New listings sank 27.8% from last year’s flow of newly added listings.
- Newly pending listings only dropped 32.5% year-over-year – a large drop but somewhat less severe than the 38% year-over-year decline observed in November.
- Asking rents fell 0.3% month-over-month, a slightly smaller drop than in November but a bigger drop than is typical in December. The typical U.S. rent is now $1,981.
Home values slipped 0.2% in December, a repeat of November’s modest decline, leaving the typical home value at $356,819, or 0.7% below the peak set in June, according to the Zillow Home Value Index. For the calendar year, that leaves home values 8.4% higher than at the end of 2021–a rapidly decelerating pace of annual growth, down from the record-high 21% year-over-year growth measured in April.
Affordability, or the lack thereof, was the chief obstacle to the housing market in the second half of 2022, continuing right through the end of the year. The monthly cost of a 30-year mortgage to buy a home priced at the national ZHVI level, with a 20% down payment, stood at $1,795 in December, about 62% more than a mortgage on the typical-valued home at the end of 2021, due partly to the aforementioned price appreciation but due mostly to the more-than-doubling of 30-year mortgage interest rates over the last 12 months: from 3.11% on December 30, 2021, to 6.42% on December 29, 2022.
Year-over-year home value appreciation was still highest in Florida, as the 50 largest metro areas were led once again by Miami (19.7%), Tampa (16.4%), Orlando (15.4%), and Jacksonville (14.0%), although the rate of growth was decelerating rapidly in all four. At the other extreme are four high-cost metro areas with tech-centric local economies where prices are slightly down from this time last year: Austin (-4.2%), San Francisco (-2.0%), Seattle (-0.6%) and San Jose (-0.0%) had the lowest annual home value growth among the 50 largest metropolitan areas.
In the standoff between buyers and sellers, neither side has fully capitulated, but more sellers have been accepting lower offers
By the third quarter of 2022, it was clear that the housing market was approaching some sort of a stalemate. Buyers balked at the high prices coupled with high mortgage rates, and many would-be sellers evidently steered clear of the market, sending the flow of new listings down to a trickle. The standoff left many listings languishing for months without a satisfactory offer, pushing up the median time on market to its highest level of the pandemic: 30 days for the median listing in December to go pending, or more than double the 2021 peak of 13 days in December, and up sharply from November’s leisurely 22 days.
In November (the latest month with complete data on closed transactions), only 27.9% of homes sold for more than their last list price, down from 44.8% in November 2021, when the momentum of the hot summer housing market carried right through into the normally quiet winter months. Meanwhile, over half of homes (52.9%) sold below their list price in November, for the first time since July 2020, back when the surprising pandemic-era housing market frenzy first kicked into gear.
The rising share of below-list sale prices reflects the growing negotiating power of buyers in this market, as inventory continued to rise against seasonal norms, to a 15.9% year-over-year gain in active listings. That relative growth arrived in spite of only roughly 168,000 new listings hitting the market in December, the lowest monthly total in Zillow data back to 2018, and 27.8% fewer than last year’s crop of December new listings.
Thawing mortgage rates may be spurring the first green shoots of the year ahead
The average interest rate on a 30-year mortgage has moved down 75 basis points, in stop-start fashion, from a high of 7.08% on November 10, to 6.33% on January 12. That alone is enough to reduce a typical mortgage payment by 7.4%, and there are early signs that buyers are responding to this positive turn of events by resuming their house hunt. Newly pending home sales, our most up-to-date indicator of sales volume, were only down 32.5% year-over-year in December – still low, but a measurable improvement from the nadir of a 38% year-over-year decline in November. Our smoothed, weekly measure of newly pending listings showed this metric continuing to make up some ground in the New Year, now down only 27.5% year-over-year as of January 14.
Rent cooldown continues
Nationally, rents fell 0.3% from November to December, a larger drop than is typical for this time of year in the Zillow Observed Rent Index. That decline leaves rents down by 0.8% from their peak (non-seasonally-adjusted) in September. Annual rent growth decelerated again, to 7.4%. The cooldown in rent growth throughout 2022 observed in measures of asking rents, like ZORI, will likely begin to show up in official measures of inflation for average rents paid, like in the CPI, sometime in the first half of 2023. More details, including local trends, can be found in this month’s Rental Market Report.