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Zillow Shares Forecast For 92.2% Of US Households

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Zillow's comprehensive analysis of the US housing market March 2024In an ever-evolving housing market, understanding the intricate balance between supply and demand is crucial for anyone looking to navigate the complexities of buying, selling, or investing in real estate. With fluctuating inventory levels and shifting economic indicators, the need for precise and current data has never been more critical.

This article delves into the latest trends and analyses, leveraging Zillow’s comprehensive database to offer a detailed snapshot of the current state of the U.S. housing market. From examining the historical context of home availability to interpreting the implications of rental rate adjustments, we provide insights essential for making informed decisions in today’s real estate landscape.

Supply Of Homes For Sale Is Rising

To accurately assess the health of the housing market, you must first examine the supply and demand relationship. Therefore, our initial graph presents the supply levels since 2019.

History of number of US homes for sale

We color-coordinated each year on the graph, showing that 2024 (represented in purple) offers roughly the same number of homes for sale as 2021. This marks a slight improvement over the past two years, yet it remains significantly below the necessary levels. It’s important to note that the red line (2019) indicates the highest inventory levels across all six years, even when 2019 experienced an undersupplied market!

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Demand Has Fallen For 26 Straight Months

This graph displays the monthly number of homes sold (blue lines) alongside the year-over-year change percentage (yellow bars on the right axis).

History of US home sales recorded by Zillow

Since December 2021, the monthly sales of homes have been on a decline, driven by mortgage interest rates more than doubling and inventory levels dropping to a record low.

Many YouTubers predicted that this falling demand would lead to a crash in home prices. However, they overlooked a crucial aspect of the housing market: Homebuilders are not constructing homes at their usual rates, meaning the bulk of the inventory comes from homeowners. These individuals contribute one unit of supply when they sell and then create one unit of demand when they purchase.

The lack of available options and the increased cost of borrowing have pushed many sellers out of the market. Consequently, the reduced demand from these potential sellers has been offset by the simultaneous decrease in supply.

Still A Strong Sellers’ Market

By merging the supply data with the demand data, we can calculate the available months of supply. Historically, a six-month supply was viewed as balanced, indicating a state of market equilibrium. However, I now think market equilibrium is achieved with a supply of closer to four months (see why here).

History of month's of supply of US homes for sale

This graph shows the inventory months of supply in the largest U.S. metropolitan areas, underscoring the persistent strength of a sellers’ market.

A gold band spans the graph horizontally, offering a broad estimate of market equilibrium. For those adhering to the traditional six-month supply standard, only three major metropolitan areas have shifted towards a buyers’ market.

If you consider a four-month supply as balanced, then only ten Metropolitan Statistical Areas have moved in favor of buyers. Regardless of the chosen benchmark, over 90% of Americans reside in areas dominated by a sellers’ market.

Even with falling demand, the lack of new inventory means the market dynamics for home sellers remain unchanged. Sellers adopting an aggressive, omnichannel pre-marketing approach continue to attract strong interest and achieve high returns from buyers.

The Zillow Crystal Ball Says …

Zillow is bullish on home prices over the next twelve months.

Real estate appreciation rate history from Zillow

This graph ranks the top 14 metropolitan areas based on Zillow’s projected home price appreciation. Thomaston, GA, leads the pack with Zillow predicting a 10.2% increase in home prices by the end of January 2025. Zillow anticipates a 4.2% rise in US home prices overall, with only 7.7% of all Metropolitan Statistical Areas expected to see declines.

Regardless of your opinion on Zillow, it’s undeniable that their extensive and rapidly updated database offers valuable market insights and data, which has significantly aided my understanding of home sales in the US.

What Stabilizing Rents Mean In The For Sale Market

Our last graph in today’s analysis showcases the Zillow Observed Rent Index, calculated by averaging the listed rents in the 40th to 60th percentile range for all homes and apartments. We monitor rents to gain an edge in forecasting future changes in home prices.

Zillow's measurement of rental rates over time

We monitor rental rates to gauge housing demand, affordability, and investment potential. Rising rental rates can indicate a strong market, pushing renters towards buying and attracting investors. This data helps us understand market dynamics, economic health, and the rent-buy decision process.

By analyzing rental trends, we can predict shifts in the housing market, advising clients effectively on buying, selling, or investing in single-family homes. Essentially, rental rates offer insights into the broader housing ecosystem, influencing demand for single-family homes and guiding strategic decisions in the real estate market.

Since the pandemic’s start, rental prices have jumped 29.4%, with an average annual increase of 7% over the past four years. Remarkably, nearly two-thirds of this surge occurred in 2021 alone. This dramatic increase was tempered by a boom in apartment construction and a slowdown in economic growth.

As of now, rents have risen 3.4% from last year, reaching $1,958, as reported by the Zillow Observed Rent Index (ZORI). This rate of annual growth is slightly below the pre-pandemic average of about 4.1% seen in 2018 and 2019. In 47 of the 50 largest metro areas, rents have increased from the levels seen a year ago.

Constrained, Cooling, Higher-Priced, Evolving Market

The data and trends presented in this article paint a comprehensive picture of the current state of the U.S. housing market. From the supply and demand dynamics to the nuanced shifts in rental rates, it’s clear that understanding these patterns is crucial for anyone looking to navigate the real estate landscape effectively. 

Despite the challenges posed by low inventory levels and rising mortgage rates, the market remains steady, with certain areas experiencing significant price growth. This resilience underscores the importance of staying informed and adaptable in changing market conditions. For those looking to make informed decisions, whether buying your first home, selling, or investing in real estate, the need for accurate, up-to-date information has never been greater.

To further your understanding of the U.S. housing market and to stay ahead of the curve with the latest updates and analyses, I strongly encourage you to visit the Joe Manausa Real Estate Channel on YouTube. There, you’ll find a wealth of videos that delve deeper into market trends, offering insights and advice that can help you navigate the complexities of the real estate world.

Whether you’re a seasoned investor or a first-time buyer, the Joe Manausa Real Estate Channel is invaluable for anyone looking to make informed decisions in today’s market. Don’t miss out on the opportunity to enhance your real estate knowledge—visit the channel today and take the first step towards achieving your real estate goals.

There are a lot of people who endorse Joe for the job of selling your home, including Preston Scott (host of Tallahassee's top daily "Audio Magazine," as well as the thousands of happy customers Joe has helped in the past. Listen why!

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