The housing market has been seeing some noticeable changes this year as home values move upward. According to the May Zillow Real Estate Market Reports, bidding wars are pushing home values up in the nation’s most popular housing markets, although home values are not anywhere near their peak points during the real estate bubble in smaller markets.
According to the report, May’s economic factors such as job growth and household formation, varied across metros as the homebuying season began. Local markets are experiencing very diverse effects, with some slowing moving, some not moving at all, and some accelerating as prices and competition rise.
"What we're seeing is the passing of the baton –as mortgage rates begin to rise and incomes and household formation rates increase–from a stimulus-driven housing market to one driven by fundamentals," said Dr. Stan Humphries, Zillow’s chief economist.
The Zillow Home Value Index found that U.S. home values grew at an annual rate of 3 percent in May, to an index of $179,200, but values in the nation’s most popular market were rising four or more times that fast. On the other hand, national home values are still about 9 percent below the housing bubble peak of $196,400 in April 2007. This was before the housing bust pushed the country into a recession.
"This transition from housing recovery to a more normal market is a good thing in the long-term, but we can expect some bumps along the way,” Dr. Humphries said. “In the end, increasing household formation and stronger income growth should be able to overcome the headwind of rising mortgage rates and return markets to health.”
Denver home values reached a new median high of $300,000, growing 14.7 percent year-over-year in May. San Jose metro home values reached $883,200, higher than San Francisco's median of $746,600. Both Bay Area markets saw double-digit growth driven by low interest rates, low inventory, and high job growth.
Yesterday, the U.S. Census Bureau and HUD jointly released new residential sales data finding that the housing market is showing no signs of slowing down as new single-family home sales in May 2015 rose 2.2 percent to a seasonally adjusted annual rate of 546,000, the highest rate since February 2008. The revised April rate was 534,000 and the May 2015 data is 19.5 percent above the last May’s estimate of 457,000.
“This month’s new-home sales report is consistent with other government data and rising builder confidence that indicate a continual recovery of the housing market,” said David Crowe, NAHB chief economist. “The uptick in existing-home sales bodes well for builders, as it shows that the sellers are able to buy a new home.”
Despite all of the housing market praise, Zillow expects for home value growth to slow even further, to 2.2 percent annually over the next year, according to their Home Value Forecast.
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