Housing Market Showed Signs of Life in January, as Buyers Began to Compete Over Still-Scarce Listings (January 2023 Market Report)
- The typical U.S. home value fell slightly from December to January (-0.1%). U.S. home values are still 6.2% higher than a year ago.
- Home values were lower than last January in seven major markets, with San Francisco experiencing the biggest drop (-4.9%).
- Newly pending listings were similar to 2020 levels, or down 20% year-over-year–a much smaller drop than the annual drops of more than 30% in each of the previous 3 months.
- Median time on market, 31 days, was slower than the last two years but faster than pre-pandemic norms to start the year.
- There were 17% fewer new listings than last January, and 30% fewer than in January 2021.
- Inventory remains very low to start the year, at its 2nd lowest January level on record.
- Asking rents fell less than 0.1% month-over-month (-$1), halting a three-month streak of measurably falling rents. The typical U.S. rent is now $1,970.
Home values slipped 0.1% in January, leaving the typical home value at $329,542, or 4.1% below the peak value set in July 2022, according to the Zillow Home Value Index. Home values are 6.2% higher than one year earlier–a rapidly decelerating pace of annual growth, down from the nearly record-high 18.8% year-over-year growth measured in April.
This is the first monthly market report referencing the newly launched version of the ZHVI, now based on the neural network-driven Zestimates that Zillow produces for nearly every home in the United States. See this research note for a deep dive on how the ZHVI is changing. The biggest difference is that the neural Zestimate, and therefore now the ZHVI, more closely tracks the ups and downs of the market during periods of rapid transition. That extends to both cyclical and seasonal changes, which explains why the 2022 peak-to-December decline in the national ZHVI level is much bigger (4.0%) than the previously reported peak-to-December decline (0.7%) in last month’s market report. The advantage of this change is that the ZHVI, like the neural Zestimate, will now better reflect the higher prices sellers can expect to receive in spring, and lower prices buyers can expect to find in the late fall and winter months.
Falling mortgage rates in the new year provided encouragement and incentive for buyers to return to the market in force: average 30-year mortgage interest rates had fallen from 6.44% to 6.10% over the month of January, helping to shrink some of the affordability challenges that deterred home shoppers throughout the second half of last 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 $1,595 in January, almost 10% less than the comparable cost at its peak in October ($1,764).
Year-over-year home value appreciation was still highest in Florida and some more affordable mid-sized markets, as the 50 largest metro areas were led by Miami (12.8%), Jacksonville (9.3%), Hartford (8.6%), Richmond (8.6%) and Orlando (8.4%). At the other extreme are five high-cost Western and tech-centric metro areas, where prices are down measurably year-over-year: San Francisco (-4.9%), Sacramento (-2.6%), San Jose (-2.3%), Austin (-1.1%), and Seattle (-0.8%) had the lowest annual home value growth among the 50 largest metropolitan areas.
Buyers have been faster than sellers out of the starting blocks, keeping inventory incredibly low
While prices dipped a few percentage points in the second half of 2022, sales volume outright plunged. At their nadir in November, newly pending listings (our best real-time proxy for purchase activity) numbered 38% fewer than one year earlier. But when mortgage rates receded, buyers began to return, so that in January, newly pending listings were only down 20% from the previous year. Just over 200,000 listings went pending in January–roughly 30% more than in December, or a very normal seasonal turnaround with the turning of the New Year.
Looking further back than year-over-year comparisons, both December and January looked a lot like the 2019-2020 winter, when newly pending listings jumped from just over 150,000 in December to just over 200,000 in January. That last pre-pandemic winter qualified as a surprisingly strong sales season. The market was then pulling out of a 2019 sales and price-growth slump in the wake of the last round of rising mortgage rates.
While pending sales volume this winter is strong enough to indicate a buyer comeback, it seems that homeowners are still hibernating rather than listing their homes for sale. New listings were by far the lowest for any January since at least 2018, when our detailed listing data began. The roughly 232,000 new listings last month were 17% lower than last year’s starting crop, which was itself a startling 16% lower than in January 2021. The anemic flow of new listings stands in stark contrast to the start of 2020, when about 328,000 new listings came to market; last month’s total was almost 30% lower.
If a “normal” volume of homes are selling, and a much lower than “normal” volume of homes are getting listed, inventory – the pool of active listings – will tend to stay low, and that’s exactly what is happening. The count of for-sale listings active at any point in January, just over 825,000, was the second lowest in several years, and even lower than the count to start 2021, which at the time was low enough to merit alarm bells about an inventory shortage.
The big questions this spring: Will sellers return? If they do, what mortgage rates will buyers be facing?
This mismatch in demand and supply seems to echo the sequence of events last summer. That’s when buyers, discouraged by high prices and mortgage rates and afraid of buying at the top, stepped away from the market. A drop in supply followed a few months later; homeowners dialed down their flow of new listings. The timing makes sense from a strategic standpoint: buyers were repelled by high prices and lots of competing buyers last spring, while now they are attracted by lower prices and the hope of shopping before too many other buyers get in the game. Sellers, meanwhile, kept wanting to cash in on high prices late last spring, and now may be waiting for the most buyer demand in hopes of selling at the highest price.
The risk for sellers waiting till April or May to list is that no one knows what mortgage rates will do in the meantime. In just the first two weeks of February, mortgage rates shot back up by as much as ¾ of a percentage point, erasing much of the decline from their peak around Halloween, and proving that no one can count on a consistent downward trajectory for rates this year. Like Punxsutawney Phil returning to his burrow after seeing his shadow, buyers may return to hibernation if last month’s mortgage rate thaw turned out to be a false spring.
Rent cooldown is nearly over
Nationally, rents fell 0.1% from December to January, according to the Zillow Observed Rent Index. That compares to a 0.2% monthly increase in January in each of the five years prior to the pandemic. This month’s decline leaves rents down by 0.9% from their peak (non-seasonally-adjusted) level in September.
Annual rent growth decelerated again, to 6.9%. 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 later in the first half of this year. At the moment, though, CPI’s rent measures are still seeing accelerating annual growth rates (from 8.3% in December to 8.6% in January for the Rent of Primary Residence component), as the elevated asking rents from last winter continue to filter through to tenants renewing their leases. But the good news about decelerating rent growth might already be showing up in the monthly change of CPI’s rent component, which fell from 0.8% in December to 0.7% in January. More details, including local trends, can be found in this month’s Rental Market Report.