Housing Market Continues to Creep Toward More Balance (September 2021 Market Report)
The Zillow Home Value Index (ZHVI) rose 1.6% from August to September and 18.4% year-over-year, a new record-high pace of annual appreciation, to $308,220.
The median home sale went pending in 9 days, one day longer than in August.
Inventory was up just 0.4% from August, a smaller monthly gain than the previous four months, and remains almost 20% lower than this time in 2020.
Annual growth in home values set another record high of 18.4% in September, but a closer look at the data reveals that the modest slowdown in growth that began late in the summer continued into early fall, giving buyers slightly more selection and a bit more time to breathe.
The U.S. Zillow Home Value Index (ZHVI) rose to $308,220 in September, up 1.6% from August. That's the fourth-fastest monthly pace of appreciation recorded by Zillow in data dating back to 2000, but also the second-straight slowdown after monthly appreciation peaked this year at 2% in July (slowing to 1.8% in August). The typical U.S. home was worth 18.4% more in September 2021 than it was in September 2020, surpassing August's then-record of 17.5% annual appreciation.
Home values were up on the month and the year in all 50 of the largest metro areas tracked by Zillow. Monthly growth in these markets ranged from a low of 0.4% in San Jose to 3.0% appreciation in Raleigh. Annual appreciation in large markets was in the double digits across all 50 markets, ranging as high as an eye-watering 44.9% in Austin and 32.2% in Phoenix to a comparatively "sluggish" rate of 13.2% in New Orleans.
Inventory's gradual return
For-sale inventory, a measure of how many listings were available on the market in the month of September, crept up by 0.4% from August. That's a smaller gain than the previous four monthly increases dating to May (ranging from 3.1% to 4.1%), but roughly matching pre-pandemic seasonal patterns where inventory generally peaked for the year around August or September.
The modest inventory recovery this summer, after hitting an all-time low in April, still leaves inventory down 19.9% from this time a year ago. But even there there is a silver lining — the last time the year-over-year inventory deficit was less than 20% was July 2020. It's slow progress, and the inventory shortage remains very acute. Buyers will still see precious few options on the market in most of the country, which is likely to keep up the competitive pressure on the listings that do hit the market. But things are slowly changing in buyers' favor.
Another modest, incremental change in buyers' favor is the gradually slowing market velocity. Homes are still selling incredibly fast: The median home listing in September went pending in just 9 days. Even so, that's 1 day longer than in August, giving buyers even a bit more time to find the homes they're looking for and make an offer on them before they're snatched up.
Rental rebound echoes price boom
Monthly growth in the Zillow Observed Rent Index slowed again in September, to 1.3% from recent highs of 2% in July (and 1.5% in August), but growth remains very fast. The nation's typical rent is $1,888/month, 12.9% higher than this time last year.
Annual rent growth was positive in all 50 of the largest metros, with growth in Tampa (25.7%) Las Vegas (25.7%) and Phoenix (25.6%) topping the list, and San Jose (4.9%), Minneapolis (5.8%) and San Francisco (6%) rounding out the bottom. Monthly growth was positive in 47 of the 50 largest metros, down very slightly from August in Kansas City (-0.6%) and San Francisco (-0.1%) and unchanged in Houston.
Looking Ahead
Home sales activity — which has exceeded expectations in recent months — is expected to get stronger in the near- and longer-terms, while home value growth is likely to slow somewhat through the end of the year but to strengthen through Q3 2022 (both relative to earlier expectations).
Home values are expected to grow 4.4% from September through the end of this year, and to end 2021 up 19.5% from the end of 2020. The near-term, three-month forecast is lower than the 4.7% growth expected previously from August to November, largely driven by recent slowdowns (however modest) in home value growth observed throughout the summer. Over the longer-term, however, our expectations for home value growth have strengthened, from an initial forecast of 11.7% through August 2022 to a revised forecast of 13.6% through September 2022. The relatively strong long-term outlook is driven by the slowdown in inventory growth, coupled with stronger pending home sales and for-purchase mortgage applications activity — which is expected to lead to tighter longer-term market conditions (and faster home value appreciation) than previously expected.
We currently expect 6.04 million existing home sales to close in 2021, up 7% from an already strong 2020 and also up from prior forecasts of 5.93 million sales this year. Like longer-term home value growth, strong recent growth in pending home sales and for-purchase mortgage applications combined to drive up our sales expectations for the remainder of this year. Our longer-term forecast for sales was also revised up, in part due to changes in home affordability. Though affordability continues to worsen, it's doing so at a slower pace than we had previously expected and therefore placing less downward pressure on our long term outlook.
However, many downside risks to our forecast remain. The expiration of mortgage forbearance programs adds uncertainty to the outlook for for-sale inventory, and elevated inflation heightens the risk of near-term monetary policy tightening, which would result in higher mortgage rates and weigh on housing demand.
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