Zillow Market Pulse: September 17, 2021

March job losses topped 700k
·5 min read

September 17, 2021

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The housing market remains very competitive but slowing home value appreciation indicates that the frenzy from earlier in the year is quieting down. An increase in for-sale inventory reinforces this narrative and looks to be increasing home shopper confidence. Interest rates remain low, but trended firmly upward toward the end of the week in anticipation of a Fed announcement.

Home value growth cools even as annual appreciation sets new records

  • The national Zillow Home Value Index (ZHVI) increased by 17.7% in August from a year ago.

  • Monthly ZHVI appreciation cooled 0.22 percentage points from July to 1.75%.

Inventory levels grow for a fourth straight month, coinciding with an uptick in home purchase applications

  • More than 1.1 million homes were for sale in August, up 4.1% from July.

  • Applications for home purchase mortgages increased by 7.6% last week from the week before, according to the Mortgage Bankers Association.

Mortgage rates end the week higher in anticipation of a key Fed announcement

  • Mortgage rates now sit at their highest level in about two months.

  • Investors believe that the Federal Reserve could announce plans next week to tighten monetary policy.

So what?

As the summer nears its end, the housing market remains very warm, but it has gotten distinctly cooler from earlier in the year. Home values continue to grow at a record-fast annual pace: The nation's typical home value – as measured by the Zillow Home Value Index (ZHVI) – grew 17.7% in August from the same month in 2020, setting a new all-time high annual growth rate for the fourth straight month. The typical home value in the US in August has increased by more than $45,000 from a year ago. But while the annual appreciation continues to set new records, monthly home value growth has begun to soften. National ZHVI increased by 1.75% in August from July, a slower monthly pace than the 1.97% monthly clip registered in July. While monthly ZHVI appreciation in August was the third strongest month-over-month reading in Zillow data history, the one-month deceleration from July the sharpest since July 2020. Taken together, the figures illustrate that the housing market remains very competitive, but that it is also actively cooling from its white-hot state. Leading indicators of home price growth reinforce this dynamic. Of the for-sale listings that went pending last week, 78% of them did so after being on the market for fewer than 30 days. That's down from a high of more than 85% earlier in the year, but still more than 25 percentage points higher than the shares in the same weeks in 2018 and 2019.

The softening home price pressure is due in part to increasing levels of for-sale inventory. After consistently plumbing new lows for almost a year, the number of for-sale homes on the market has risen for four consecutive months. While inventory levels are still down significantly (22.7%) from a year ago, the recent uptick in listings has afforded eager home shoppers more options and appears to have assisted in boosting their confidence. The share of people who believe it is a good time to buy a home – as measured by Fannie Mae – ticked up four percentage points in August from July, the first monthly improvement since March. The measure remains near all-time lows, but the monthly improvement was an encouraging sign for the market. And this increased optimism is also showing signs of materializing into home purchases. The Mortgage Bankers' Association's index of home purchase mortgage applications increased by 7.6% last week from the week prior. The measure – a leading indicator of home sales in the coming months – has improved in six of the last eight weeks and now sits at its highest level since April.

One trend that could threaten this budding momentum in home sales activity are recent increases in mortgage rates. Rates had stayed relatively flat for the last few weeks, but they ended the week by making some sharp upward moves and now sit at their highest level since July. The upward momentum came even as a key reading on inflation showed price growth slowed last month, indicating that sky high inflation may finally be starting to cool (though other measures of inflation suggest that price growth may be accelerating and broadening beyond a few select industries). Inflation is a key factor for mortgage rate movements, as rising prices weaken the value of bonds, causing yields to rise and, usually, mortgage rates to follow suit. Whether or not mortgage rates will continue this upward momentum or revert to recent lows will depend more heavily on a key policy announcement next week from the Federal Reserve. The Fed has hinted they may announce a planned shift toward tighter monetary policy this month, but recent weaker-than-expected reports on the labor market and other key sectors, as well as the ongoing surge in COVID cases across the country, may have weakened their case. For now, mortgage rates remain very low and will likely continue to offer attractive financial conditions for housing market shoppers looking to buy their home.

 

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