Zillow’s home value forecast predicts a sharp slowdown in annual home value growth from the current pace of 19.8% to 7.8% growth through June 2023. Expectations for the year ahead have been revised down from Zillow’s previous forecast for 9.7% growth in the year ending May 2023. The new forecast predicts a steeper drop in appreciation before stabilizing at levels closer to pre-pandemic averages.
The downward revision comes amid a faster-than-expected deceleration of monthly growth in the Zillow Home Value Index (ZHVI) and a weaker outlook for home transactions. The housing market is quickly rebalancing from what had been arguably the strongest sellers market in decades, with inventory rising and competition for homes easing in the face of significant affordability challenges. The rebalancing is expected to continue given current macroeconomic headwinds.
Zillow’s latest forecast for existing home sales calls for 5.46 million sales in calendar year 2022 – a 10.8% decrease from 2021. A more aggressive plan from the Fed to raise the federal funds target rate and deteriorating consumer sentiment were key reasons behind the downgrade. Historically, weak consumer sentiment has been accompanied by sluggish home sales. There are also widespread concerns that aggressive interest rate hikes will cause an economic downturn, which would be expected to translate into fewer home sales.