Home Value Growth Accelerated in February, Ending a 21-Month Slowdown (February 2020 Market Report)

• U.S. home values rose 3.9% annually in February, up from 3.8% in January. The typical home in the U.S. is now worth $247,084.
• Inventory fell to a new low, down 8.4% year-over-year nationally and nearly 30% in some markets.
• All eyes are on how economic impacts from the coronavirus pandemic will affect housing in the months to come in what is typically the hottest period for home shopping. Zillow research has shown sales volume is typically more affected than prices during health crises, and home values have continued to rise during most recent recessions.

The last full monthly read of U.S. housing market data before the coronavirus pandemic hit the nation in earnest shows a market that had turned a bit of a corner and was well-poised for a strong traditional spring home shopping season. Time will tell whether that momentum is enough to keep the market afloat through to the other side of the crisis.

After a nearly two-year slowdown, year-over-year home value growth in February rose from the month prior. The typical home value in the U.S. is now $247,084, a 3.9% increase from a year ago, according to the February Zillow® Real Estate Market Report.

U.S. home values have not fallen on an annual basis since summer 2012, and have only done so in recent years in just a handful of the nation's most expensive markets. But the rate of annual appreciation nationally had slowed in each month between May 2018, when they grew 6.7% year-over-year, and January 2020, when they grew 3.8%.

Among the nation's 50 largest markets, annual home value growth in January was fastest in Phoenix (7%), Memphis (6.7%), and Birmingham (6.4%). Year-over-year growth was slowest in San Jose (+0.4%), Hartford (0.9%) and New York (0.9%).

February's turn in home value appreciation came as for-sale inventory again fell to a new low. U.S. inventory was down 8.4% year-over-year last month, to 1,477,015 homes for sale. February was the third straight month in which inventory was below 1.5 million, the first such streak since Zillow began tracking the data in 2013. This continued tightening of homes on the market, along with incredibly low mortgage rates that make monthly payments more affordable, continues to be a key factor putting pressure on prices as buyers compete for the limited homes that are available.

Locally, inventory was down 29.4% in Phoenix, the largest year-over-year drop among the nation's 50 largest markets. Coincidentally, Phoenix also boasted the fastest annual home value appreciation of any of the nation's large markets. Overall, inventory was down in 47 of the nation's 50 largest markets, rising only in San Antonio (5.9%), Detroit (5.4%) and Chicago (1.3%).

But even as the market had begun to turn, the economic impacts of the coronavirus pandemic were only beginning to be revealed as February ended. Ultimately, it is possible this reacceleration will be a blip, not a trend, and reverse itself in the coming months. The U.S. economy has entered a bear market, with major financial indices falling by more than 25% since the beginning of the year. Zillow research on past pandemics has shown that home sales activity slowed during the outbreak, sometimes significantly, but prices remained stable and the market recovered quickly once the outbreak subsided.

If the U.S. were to fall into an economic recession, that would dampen the outlook for housing somewhat as that often means a recovery will be slower and more prolonged. But it's unlikely a recession now would have the same impact on the housing market as the Great Recession did in the mid-2000s. Previous research by Zillow about other economic downturns over the past 23 years shows that, historically, home values tend to rise faster than inflation during a recession.

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