July 2020 continued to be a sellers’ market thanks to an evaporating inventory and a surplus number of buyers, according to the latest Zillow Real Estate Market Report.
Last month, Zillow found the average home value was $253,527 in July, a 4.5% increase from one year earlier and the fastest year-over-year spike since May 2019. From June to July, home value growth inched up from 0.4% to 0.48%, which Zillow declared to be greatest one-month acceleration since May 2012.
Annual home value growth increased from June to July 42 of the nation’s 50 largest metro areas, most notably in San Jose (up by 2.1%) and the Connecticut capital of Hartford (up 0.8%). On a monthly measurement, home values were up in all 50 metro areas. Homes sold in July typically went under contract after only 16 days, two days faster than the previous monthly speed record set in January 2018.
Low inventory levels were the primary cause for the rising home prices. Zillow determined housing inventory down 28.4% from last year for the week ending Aug. 15, with 409,029 fewer homes listed on the market versus one year ago. The year-over-year inventory shrinkage impacted all of the f the 50 largest metros, and down the most in Riverside (-46.5%), Baltimore (-43.8%) and Hartford (-43.1%).
Looking forward, Zillow is forecasting that home value appreciation will slow to 3.6% over the next 12 months, although the short-term growth is expected to be more positive than the long-term picture. from the 4.5% year-over-year growth seen in July. In the short term, the updated forecast is now more optimistic toward continued home value growth than previous releases.
"This spring's housing soft patch is receding in the rear-view mirror as we get a clear picture of robust demand meeting remarkably low supply," said Zillow economist Jeff Tucker. "Record-low mortgage rates and a record-high number of people in their early 30s are combining to fuel first-time buyer demand. Builders, acting on unprecedented confidence, are racing to meet demand, but supply remains well behind what's needed. This lack of inventory, along with forbearance terms keeping unemployed homeowners in their homes, stands in stark contrast to the Great Recession, when excess supply and distressed sales brought down home values."
Zillow predicted home value appreciation will slow to 3.6% over the next 12 months, although the short-term picture will be more optimistic than the long-term forecast.
"While the housing market has so far sailed through the headwind of high unemployment, risks remain," Tucker said. "A slow economic recovery that keeps millions of Americans looking for work could dampen home buying demand and may even lead to a wave of foreclosures when forbearance expires. This pessimistic possible outcome for 2021 has caused Zillow's price forecast to shade down a bit."
On the rental side of housing, Zillow noted year-over-year rent growth continued to slow, with the typical rent up 1.2% to $1,749. Rents were down in nine of top 50 markets from one year ago, most notably in New York City (-2.6%), San Francisco (-2.5%) and San Jose (-2.2%).