The typical U.S. home value climbed 1.4% from April to May, the strongest monthly growth since last June, and fast enough to cement this home shopping season as an unusually hot one, although still a few degrees cooler than the past two springs. Home buyers who have persevered in the face of daunting affordability challenges are finding very few fresh options, helping to trigger bidding wars and surprisingly high sale prices for the lucky few listings on the market. 

The typical home value (according to the raw, non-seasonally-adjusted Zillow Home Value Index) climbed to $346,856. That is 0.9% higher than one year ago, 0.8% below the peak observed last July, and 3.4% above the recent low in January 2023. 

The second quarter is traditionally the hottest time of year for the for-sale housing market, and 2023 has been no exception so far. It remains to be seen if the usual seasonal price slowdown beginning in August will arrive like normal this year.

From hot spots to soft spots: Local ZHVI trends

The largest monthly home value gains were seen in more affordable metro areas, primarily in the Midwest, which accounted for six of the seven metros with the biggest gains in May. Columbus led the way (2.2% monthly gain), followed by Cincinnati (2.2%), Detroit (2.1%), Richmond (2.1%), and Milwaukee (2.0%). 

Prices did not drop, on a monthly basis, in any of the 50 largest metro areas, but the smallest gains were in Las Vegas (0.5%), New Orleans (0.6%), Phoenix (0.6%), Austin (0.6%), and San Antonio (0.7%). 

One interesting trend to watch is the rebound in West Coast markets, where prices fell substantially in late 2022. For the second month in a row, tech hubs San Jose (1.9%), Seattle (1.7%), and San Francisco (1.4%) saw monthly price gains above the national average.

Home values are now down from year-ago levels in just over half (27) of the 50 largest metro areas, most significantly in Austin (-11.2%), San Francisco (-9.3%), San Jose (-8.4%), Phoenix (-7.0%), and Las Vegas (-6.9%). Meanwhile, annual price gains are highest in Richmond (5.8%), Miami (5.4%), Oklahoma City (4.9%), Kansas City (4.1%), and Cincinnati (4.0%).

The curious case of the missing listings

There were 23% fewer new listings than last May, a milder year-over-year drop than observed in April (-28%), but very similar to the 22% annual decline in March. 

The dearth of new listings has dogged the housing market for almost a year now, and the chief suspect remains unchanged: today’s higher mortgage rates (6.8% as of this writing, the highest since November, up from 5.1% a year ago and 3.0% two years ago) make it costly for homeowners – most of whom have a mortgage below today’s rates and intend to turn around and borrow for their next home purchase – to list their home. Even without intentions of buying another home, anyone with a sizable mortgage for under 4% might be loath to let it go, when they could potentially rent out the home for more than their carrying costs.

The reservoir of listings has not been refilled at its normal pace this year

Total active inventory in May was down 3.1% from last year, and stands a whopping 45.7% below May 2019 levels. The small year-over-year decline brings inventory back full-circle after 11 consecutive months of year-over-year gains — tiny increases last summer, swelling to a 19.5% year-over-year growth in January, before steadily dwindling to this month’s small deficit. Last month’s active inventory total marked the fewest active listings in any May on record. On current trends, given the lack of new listings, it is likely that June will also see a new low-water mark. These low inventory levels are a probable cause of strong home value growth this spring.

Buyers persevered in May, keeping pending sales strong

Newly pending listings climbed 9.5% from April, shrinking the year-over-year decline to a mere 18% in May – a steady improvement from a 21% dip in April and a 24% dip in March. The roughly 295,000 listings that went pending in May belie some claims that the market is “at a standstill.”

The reason for continued improvement is not crystal clear, as mortgage rates actually climbed in the second half of the month. In 2018, 2019, and 2022, May marked the high water mark for pending sales; data in the weeks ahead will reveal if that seasonal pattern repeats itself in 2023, or if the buying season stretches into summer like in 2020 and 2021.

Rents continue to grow slower than normal

Asking rents climbed 0.6% month over month again in May, a nearly normal monthly growth rate for this time of year. Rents are now 4.8% higher than in May of last year, and have climbed only 1.9% this year to date, a somewhat slow start to the year. 

See more on rents in the May 2023 Rental Market Report.