Home Values Keep Climbing in Spring Shopping Season’s Last Hurrah (July 2023 Market Report)
The typical U.S. home value climbed 0.9% from June to July – a steamy pace for this time of year, but at least a welcome seasonal cooldown after 1.4% month-over-month growth in each of the preceding two months. The nation’s typical home value now sits at an all-time high ($349,679), which is 1.4% higher than last July. After June’s 0.8% year-over-year growth, this marks the first acceleration in annual growth since April 2022, ending a 16-month streak of decelerating annual price gains.
The modest liftoff in annual growth confirms that the housing market has now weathered over a year of higher interest rates without a price crash, although sales activity remains very low. For the remainder of 2023, buyers should expect buying conditions to improve, as the normal seasonal pendulum of the market swings gradually in their favor. Early signs of that transition include rising time on market (from a median of 11 days to pending in June to 12 days in July), and a rising share of listings with a price cut (from 21% in June to 22% in July).
Almost all major U.S. markets’ home values climbed from June to July, but nearly half are still down from year-ago levels
Metropolitan areas in the Midwest and Northeast saw home values climb the most, on a monthly basis, in July, led by Hartford (2.1% increase from June), Pittsburgh (1.5%), Chicago (1.4%), New York (1.4%), and Boston (1.3%).
Home values grew, on a monthly basis, in all but one of the 50 largest metro areas. Austin saw typical home values dip by -0.5% in July, while the slowest monthly growth was in San Antonio (0.2%), Denver (0.2%), Birmingham (0.3%), and Memphis (0.3%).
Home values are down from year-ago levels in just under half (23) of the 50 largest metro areas. The largest declines are in Austin (-10.4%), Phoenix (-6.1%), Las Vegas (-6.0%), San Francisco (-5.0%), and Sacramento (-3.9%). Annual price gains are highest in Hartford (5.7%), Richmond (5.4%), Philadelphia (5.3%), Miami (5.3%), and Milwaukee (5.2%).
The (lack of listings) beat goes on…
New listings once again set a new seasonal low-water mark, as just under 336,000 came to market in July. That’s 26% fewer than last July, when the flow of new listings was already beginning to dip amid rising interest rates. The annual decline in July was somewhat smaller than June’s jaw-dropping 28% year-over-year drop, which doesn’t reflect an improvement in new listings so much as the beginning of a lower bar for comparisons.
The total new listings in July of just under 336,000 would be more at home as a frosty January tally – January new listings in 2018, 2019 and 2020 averaged just over 330,000. For a more normal benchmark in midsummer, we can look to 2018 and 2019, when an average of just over 473,000 new listings came to market in July: a whopping 41% more than were listed this July.
New listings have been scarce for a full year now, and the most likely cause – the high interest rate on mortgages (6.9% as of this writing) – remains stubbornly in place. A recent Zillow survey found some suggestive evidence that the gap between homeowners’ existing mortgage rates and today’s prevailing rates can help explain their reluctance to sell: Homeowners with a rate of 5% or above were almost twice as likely to consider selling their homes in the next three years as those with a rate below 5%. That doesn’t mean rates need to return all the way to 5%, but rather, that the lower they go, the more homeowners will be willing to entertain the idea of selling their homes to move.
Fundamentally, though, even if existing homeowners get more willing to sell their homes and move to new ones, that kind of housing stock turnover won’t add net new supply to the market. The only source of net new housing is newly built homes. Builders are ramping new home sales back up, now that it’s clear the supply of listings from existing homes is leaving unmet demand among buyers. Builders are also getting more creative to offer buyers an affordable product, turning to smaller homes, more townhouses, and interest-rate buydowns for their customers.
Active inventory set another new low-water mark for July
Total active inventory in July was down 15% from last year, and a tremendous 44% below July 2019 levels. Our tally includes all the homes still on the market as active listings at the end of July, as well as all of the other unique listings that were active at some point in the month. This measure was almost unchanged from June, tallying a meager 0.1% month-over-month gain, which is much slower than the seasonal inventory buildup underway at this time the past two years, when July’s active listings tally climbed between 5% and 6% month-over-month.
July will likely mark the high point for inventory in 2023, if it follows seasonal trends seen in 2018 and 2019; at best (for buyers) it could inch slightly higher in August, like in 2021 and 2022; but either way, buyers should not expect to see many more homes available for sale on Zillow at any time this year than they do now. Zillow’s weekly tally of active listings began to dip in the last full week of July, likely marking the beginning of the gradual drawdown in inventory until a seasonal trough early next year.
Determined buyers kept pushing forward
Newly pending listings – our best real-time gauge of purchase activity – were only 14.5% below year-ago levels. That’s the smallest year-on-year decline since May of 2022, but still represents a major slowdown in activity from the high sales volumes in 2021 and 2020. Further, as observed above for the flow of new listings, the annual change in newly pending listings is now being measured against a lower benchmark: pending sales volume was already declining precipitously by July of last year.
On a monthly basis, newly pending sales stepped down 6.5% from June to July, continuing roughly along the seasonal trends observed in 2018, 2019, and 2022, when pending sales activity peaked for the year in May. Nonetheless, even in those years the third quarter was the second busiest, as buyer activity usually only gradually declines in the dog days of summer.
Another indicator of (slightly) slowing buyer activity, in a literal sense: the median pending sale took 12 days in July, two days slower than the seasonal low of 10 days in April and May. The gradual tapering of sales volume and sales speed together indicate that negotiating power has likely begun to swing in buyers’ favor, and those who remain in the hunt should expect the pendulum to swing more in their favor as the summer wears on. We observed this seasonal pattern just beginning in June’s market report, and it has continued as predicted so far this summer.
Rents are climbing slightly faster than normal for July
Asking rents climbed 0.5% month-over-month in July, slightly faster than normal for this time of year, based on pre-pandemic averages from 2015 to 2019. Rents are now only 3.6% higher than in July of last year, and cumulatively climbed only 2.9% in the first half of the year, somewhat below the usual 4.0% by the midpoint of the calendar. On the whole, rental market trends seem to be returning to normal, and July’s slightly hot reading is still consistent with the start of the usual second-half seasonal slowdown in rental demand this year.
See more on rents in the July 2023 Rental Market Report.