The sale and rental housing markets continued to move in divergent directions in the month of May, with home value growth rates slowing and potentially flattening while rent growth rates indicated a modest acceleration after a couple of consecutive declines.
Both of these indicators are signs of a housing market that is beginning to normalize after several years of rapid value growth, according to new market data analysis released this week by Zillow, and presented in a written post by Zillow’s Director of Economic Research Skylar Olsen.
“The U.S. median home value rose 5.4 percent year-over-year in May, to a Zillow Home Value Index (ZHVI) of $226,800, according to the May Zillow Real Estate Market Report,” Olsen writes. “May’s annual growth rate is still well above the historic average pace of annual ZHVI growth of 3.8 percent in a given month, but represents a notable slowdown from both the May 2018 rate of 7.5 percent and the recent high of 8.1 percent set in December 2018.”
While a brief acceleration was observed during the last four months of 2018, annual ZHVI growth has slowed when compared to the month prior in each of the first five months of 2019, the report reads.
“This national slowdown is echoed in a large majority of the nation’s largest housing markets – 33 of the top 35 U.S. markets grew more slowly in May than they did a year ago, with Indianapolis and Cincinnati the only markets bucking the trend,” said Olsen. “But while most of these large markets have slowed, home values in almost all of them still grew in May – San Jose, Calif., is the lone large market in which home values fell year-over-year, declining 5.7 percent.”
When looking at the monthly data figures, median home values in the U.S. fell in May, marking the second monthly decline after a long, 85-month period of month-to-month growth. These observed declines are particularly notable because of their rarity over much of the past six years, when the housing market began to make a comeback in the aftermath of the 2008 financial crisis and the resulting recession.
Their magnitude is described as “minor” by Olsen, however, and monthly home value growth may be more accurately termed as “flattening” as opposed to describing this trend as a meaningful decline.
“In March, prior to the past two monthly declines, the median U.S. home was worth $227,200 – just $400 more than currently,” Olsen says. “As the busy home shopping season enters the summer months and buyers continue to hit the market, even modest monthly growth could easily erase that decline.”
However, when looking at a longer-term and higher-level view of the housing market, the observed slowdown in home value appreciation has “long been expected,” according to Olsen, and could even be characterized as a welcome occurrence from some perspectives.
“It has been widely acknowledged that the aggressive pace of home value growth over the past several years was unsustainable. Buyers simply couldn’t keep up, and home prices are correcting,” Olsen says.
This normalization should be expected to continue, she added.
“This steady return to ‘normalcy’ – something U.S. housing hasn’t experienced in two decades – will carry on, and we should expect some continued, but increasingly moderate, volatility. And the significant recent drop in mortgage rates, as well as renewed rent growth, may help U.S. home values get back into positive territory sooner rather than later,” says Olsen.
Read the full post at Zillow.