Home Value Growth Continues Steady Normalization as Inventory Creeps Up (July 2019 Market Report)

• The rate of year-over-year home value growth has fallen in each of the past seven months. The median U.S. home is worth $229,000, up 5.2% from this time last year.
• Rents grew 1.9% on an annual basis. The median monthly rent in the U.S. is $1,592.
• For-sale inventory grew 1.3% year-over-year, and new listings are up 5.7% from a year ago.

The annual pace of U.S. home value growth slowed for the seventh straight month in July as the market continues to normalize and slowly find more balance between home buyers and sellers after years of seller control.

The typical U.S. home was worth $229,000 in July, up 5.2% from a year ago – the slowest annual appreciation recorded in any month since October 2015. In the same month last year, home values rose 7.7% year-over-year. Despite the slowdown, home values are still showing healthy growth after a brief stall earlier in the year. Monthly home value growth flatlined in both April and May, but bounced back to 0.3% in both June and July – exactly in line with long-term monthly averages.

Among the 50 largest U.S. markets, home values grew the most last month in Salt Lake City (up 9.4% since July 2018), Indianapolis (up 8.1%) and Charlotte (up 7.3%), though growth in all three is slower than a year ago – a trend echoed in a majority of large metros nationwide. Annual growth in July was slower than a year ago in 47 of the nation's 50 largest markets. The three large markets in which home value growth has accelerated (New Orleans, Birmingham and Oklahoma City) are notable for their relative affordability – the median home value in all three is well below the national median. Markets in which home value growth has slowed the most include pricey west coast markets and a couple of traditionally more-affordable markets: San Jose, San Francisco, Las Vegas, Seattle and Dallas.

In the once red-hot and still ultra-pricey Bay Area, home values aren't just growing more slowly, but have actually fallen – the value of the typical home fell 10.5% last month in San Jose and 1.1% in San Francisco compared to July 2018. For reference, at the same time last year home values grew 24% annually in San Jose, a 34.5 percentage point difference.

Ultimately, this ongoing slowdown is a good sign that the market is adjusting in response to the growing difficulty of saving for a down payment as prices rise. And for those with adequate savings, low mortgage rates are helping keep them interested in homeownership, despite the potential for softer appreciation in their investment during the first few years of ownership.

A 'Good & True' Increase in Supply

There were 1,575,892 U.S. homes listed for sale in July (seasonally adjusted), up 1.3% from a year ago. This modest annual increase breaks a stretch of four consecutive months in which inventory fell year-over-year. Inventory was also up year-over-year in 30 of the nation's 50 largest markets. For-sale inventory grew the most from a year ago in Las Vegas (up 53.5% year-over-year), San Jose (32.6%) and Denver (26.9%).

Unlike prior months, recent inventory gains look to be driven largely by growth in newly listed homes – and not necessarily homes lingering longer on the market. Sellers put more than 385,000 homes on the market in July, up 5.7 percent from a year ago and the first annual gain of the year. At the same time, the number of days a home spent on the market before selling remained steady in June (the latest month for which data was available) at 66 days, the same as in May and just one day more than June 2018.

This uptick in the rate of homes coming onto the market – for the first time in a while, a good and true increase in supply – should be a balm to inventory-starved home buyers still on the market as the home shopping season turns from spring to summer.

Rent Growth Stabilizing

After a period of breakneck annual growth in the 6% and 7% range as recently as 2015, annual rent growth has stabilized around 2%. The median U.S. rent grew 1.9 percent year-over-year in July, to a Zillow Rent Index of $1,592/month.[1] On a monthly basis, the median U.S. rent grew 0.5% from June (up $8/month from $1,584). Rent was up year-over-year in 47 of the nation's 50 largest markets.

For the eighth consecutive month, rents rose the most in Phoenix (up 6.1% from a year ago), followed by Las Vegas (up 5.9%). Rents fell in only three of the 50 largest markets – Houston, Buffalo and Baltimore.

 

[1] Beginning with publication of July data, we have adopted a revised methodology for calculating the Zillow Rent Index. These changes were made to better reflect the stock of homes that actually rent in a given month, and will offer more visibility into smaller changes in the rental market going forward. We invite you to take a deeper look into our new methodology here.

 

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