Discover the Latest in Home Affordability With Zillow's Cutting-Edge Tracking Tools

Zillow graph plots home affordability for both new homeowners and new tenantsAre you captivated by the growing saga of the home affordability crisis?

Zillow, a leading giant in the real estate domain, has recently unveiled innovative tracking tools that offer fresh insights into this vital topic. Join us as we delve into the treasure trove of data housed in the Zillow Data Vault.

Updated monthly, the Zillow resource provides some of the most up-to-the-minute information on home sales across the top 1,000 U.S. housing markets. In our latest report, we zoom in on the data that sheds light on the current home affordability crisis.

Prepare to be informed and engaged as we unravel the complexities of the housing market through Zillow's advanced analytical lens.

Zillow's Median Home Price Tracker

This graph plots the median list price and median sales price of homes over the past five years.

Zillow's tracking of the Median US Home Price

While many people called for home prices to crash, we have consistently warned that the supply of homes for sale was insufficient for today's demand. Even as home affordability crashes, the fewer buyers in the market have resulted in fewer sellers in the market, so home prices have been sheltered.

Also note that numerous reports of falling home prices coincided with seasonal norms (home prices rise and fall year-long, though, for the past 100+ years, the general trend has been rising).

We did see home prices come down a few percent year-over-year, but nothing like the 30% to 50% the doomsayers called for. Zillow anticipates higher prices next year, forecasting 2.2% growth.

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Zillow's Home Affordability Tracker

This graph plots home affordability for both new homeowners and new tenants.

Zillow's US Home Affordability Tracker For Home Prices And Rental Rates

One way to measure home affordability over time is to compare the monthly cost of owning or renting a median-priced home over time. This measurement uses historical data on home prices, rental rates, and mortgage interest rates to determine how the median homeowner/renter has fared with the changes in the housing market.

The blue line shows that the median homebuyer today spends 40.5% of the median wage to own a home. This is more than double the 20% paid ten years ago and well above the 35.7% peak hit during the housing bubble in 2006.

Renters have seen a rise lately, too, from 27.7% ten years ago to 30.5% today. I expect rents to increase as leases expire and new tenants move in.

Rental Rates - The Housing Supply Litmus Test

Across America, the average rental price now stands at $2,011, marking a modest but notable increase of 3.2% compared to the previous year and showing a slight rise from the figures reported in September. This recent upturn marks the first instance of accelerated annual rent growth since the pandemic's zenith. Despite this growth, there was a slight dip in rent prices from September, a trend typically observed around this time of the year.

This October might signal a pivotal moment, potentially halting the nearly two-year trend of decelerating rent growth. The Zillow Observed Rent Index (ZORI) has evidenced a minor acceleration in the annual rent change, increasing by 3.23% from the previous year, a fractional advance over the 3.19% annual growth noted in September.

What does Zillow's report on rental rates have to do with home prices?

While this may suggest a shift towards a return to average growth rates, it's also possible that the market is simply finding a new equilibrium. Despite the slight annual increase, the average asking rent in the U.S. experienced a marginal decrease from September to October, aligning with the seasonal patterns noted in the years before the pandemic's onset.

The rising rental rates in the United States serve as a clear indicator of the tight supply in the housing market. The persistent upward trend in rents suggests that the availability of affordable housing remains limited. This dynamic underscores the fundamental economic principle of supply and demand—prices inevitably rise when the demand for rental properties outstrips the supply. The recent increases in rent, even if slight, point towards a continued strain on housing availability across the country.

According to the latest reports from Zillow, the U.S. housing market is currently undergoing several significant changes:

  • The Federal Reserve has increased interest rates 11 times, resulting in mortgage rates ranging from 7.5% to 8%—the highest in 22 years. The Federal Reserve indicates that these higher rates are expected to persist, impacting the cost of borrowing for prospective homeowners.

  • Home sales are projected to reach their lowest point since 2013. As of October 19, 2023, mortgage rates have reached 8%. This increase in mortgage rates, combined with a limited supply of homes on the market, has slowed down home sales. This year could mark the slowest sales rate in a decade.

  • Despite the overall market slowdown, sales of new single-family homes in the U.S. hit a 19-month peak in September. However, the rate of new home construction remains below historical averages.

These trends indicate a complex housing market that presents challenges for both buyers and sellers. Buyers face higher interest rates and down payments in a market characterized by limited inventory and elevated prices. On the other hand, sellers may benefit from high sale prices but face a diminishing pool of potential buyers, mainly due to affordability issues and increased borrowing costs.

The current market dynamics as of November 2023 reflect ongoing economic shifts and changes in consumer behavior following the pandemic. Keep a close eye on inventory and mortgage interest rates, as they will lead you to a logical, sound understanding of home affordability and the health of the US housing market.

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