• Zillow’s outlook for home prices has been revised down significantly due to a sharp downturn in July. Zillow forecasts 2.4% home value growth through the end of July 2023. 
• 5.3 million existing home sales are expected in 2022, according to Zillow’s latest forecast, a 14.1% decrease from 2021. 

Zillow’s home value forecast expects a significant slowdown in annual home value growth –  as measured by the raw Zillow Home Value Index.[1]   –  from the current rate of 16% to 2.4% for the twelve months ending July 2023. This is a significant update from last month’s forecast of 6.9% appreciation through June 2023. The large revision is driven by the quickly changing observed market conditions and an update to the forecast’s methodology. The nation’s median home value fell 0.1% in July from June – the first monthly downtick since 2012 – and has seen monthly growth decelerate from a recent peak of 1.9% in April. What’s more, Zillow’s home value forecast now incorporates the share of for-sale listings that receive a price cut into its calculation. This share has seen a sharp increase in recent months, as homesellers adjust their strategies amid changing market conditions. A weaker outlook for home sales also factors heavily into the lower forecast for home value appreciation. 

The forecast for 5.3 million existing home sales in calendar year 2022, which would reflect a 14.1% decrease from 2021, also reflects recent market changes and continued weakness in leading indicators of the metric. Sales dropped faster than anticipated in June, while July saw weaker-than-expected pending home sales and mortgage applications.

Recent economic data sent mixed signals for the economic outlook, which also factors into these forecasts. On the upside, the labor market posted stronger-than-expected job growth with a falling unemployment rate in July. Meanwhile, inflation – as measured by the Consumer Price Index – decelerated in July, which will influence the Federal Reserve’s policy decisions in the months to come. Mortgage rates for prime borrowers remain elevated compared to last year but have recently leveled off. On the downside, real GDP fell by 0.9% at annualized rate in Q2 – the second consecutive decline this year – driven by contractions in consumer spending and corporate investment.

[1] Home value annual appreciation in the July 2022 Zillow forecast represents the raw version of the Zillow Home Value Index, while the forecasts use expectations for raw Zillow Home Value Forecast. All previous Zillow forecasts have used the smoothed and seasonally adjusted versions of the Zillow Home Value Index and Zillow Home Value Forecast. The smoothed and seasonally adjusted version of the ZHVI smooths home value changes over the trailing three months, which shows a cleaner trend line without the month-to-month spikes of the raw series. (What do SSA forecasts do?) Zillow Research has chosen to present the raw version in its July monthly report and forecast during this period of unparalleled volatility. For reference, the smoothed and seasonally adjusted version of ZHVI shows 18.2% growth in July. The smoothed, seasonally adjusted forecast through July 2023 was 2.7%, and the June forecast for the next 12 months was 7%. The full series of all versions of both ZHVI and Zillow Home Value Growth are available for download at https://www.zillow.com/research/data/.