Despite mortgage rates reaching 23-year highs, low inventory levels “are spurring surprisingly strong competition,” according to Zillow‘s (NASDAQ: Z and ZG) latest market report1.
Depleted inventory stocks are “gradually recovering, and price appreciation is slowing, but demand has remained resilient, and attractive, appropriately priced listings are moving quickly.”
Skylar Olsen, Zillow chief economist, said:
“With mortgage rates nearing 8% in October, the U.S. housing market continues to turn cooler, with inventory rising, and appreciation decelerating.”
The key number for any potential buyer or seller is “the mortgage rate, which marched skyward through October and finished the month near 8%.”
Rate hikes pushed monthly payments “on a typical U.S. home up by more than 4% from September to October. At $1,991, monthly payments2 are up almost 10% compared to last October and have nearly doubled in two years.”
The Zillow Home Value Index puts “the typical U.S. home value at $347,972, up 2.3% from last year. A 0.3% monthly decline in values in October is a tad steeper than the 0.1% dip from August to September, and shows a slightly faster deceleration than pre-pandemic norms.”
Home values fell in October “in 40 of the top 50 markets, with the largest declines in Austin (-1.5%), Minneapolis (-1%) and New Orleans (-1%). The largest monthly growth was in sunny (and costly) Miami (0.5%), San Jose (0.4%) and San Diego (0.2%).”
Annual appreciation is strongest “in Hartford (11.4%), Milwaukee (8.5%), Providence (7%) and Boston (6.8%) — all metros that avoided extreme early-pandemic growth spurts.”
Inventory still depleted, but slowly recovering
New listings fell nearly 5% from September, a smaller drop than would be “expected seasonally. But levels were still the lowest to hit the market in any October recorded by Zillow (since 2018).”
Despite this, the longstanding deficit in new listings is generally shrinking as some sellers accept that high rates are sticking around. A shortfall of only 1.2% from the year prior is the smallest since May 2022, and a deficit of 19% compared to pre-pandemic levels is much improved from a trough of -35% in April.
There were still a massive 39% fewer homes “for sale in October than pre-pandemic norms, but that’s an improvement over the 46% deficit in May.”
Total inventory climbed 2.6% nationally “from September to October — a result of fewer sales and an unexpectedly small September dropoff in new listings.”
As sellers come to grips with higher-for-longer mortgage rate expectations, “rate lock” is likely to ease a bit and encourage sales — about 70% of sellers turn around and buy. Seasonally adjusted sales counts, down 31% in July from normal levels, are now improved to down 26% in October3.
Competition easing, but still tight for attractive listings
Rising rates and recovering inventory translate “to fewer buyers in bidding wars and more sellers cutting list prices. In October, 25.2% of sellers cut their list price, up from 23.9% in September. The share of sales that closed for higher than list price fell from almost 37% in August to 34% in September, but that’s still well above pre-pandemic norms of the low- to mid-20s.”
Zillow Group, Inc. says that it is “reimagining real estate to make home a reality for more and more people.”