Market activity data from Zillow revealed that home prices are making a surprise turnaround in U.S. markets worse-hit by the recent interest rate hikes. Prices have begun to increase in markets such as San Francisco, Silicon Valley, and the San Jose area, which were badly affected by recent economic conditions. Though there are multiple reasons for prices to nosedive, the only reason pushing prices north is the lack of inventory. The number of homes for sale in the Bay area and other tech hubs like Seattle is shrinking at a fast pace. The current spring sales season is expected to drive prices further higher.
Home values in San Jose, San Francisco, and Seattle increased by 1.5%, 1.3%, and 1.2% MoM, respectively. The rise was above the national figure of 1%. According to Jeff Tucker, senior economist at Zillow, the change of fortunes in these markets is noteworthy. He added that existing owners' decision not to sell built a firewall against further price declines. Tucker believes it is still early to predict the direction of the market, as seasonality might have played a role in the monthly increase. Home values are still far below the record levels they reached last year. Prices are still down by 9.9% YoY in San Francisco and 9.5% in San Jose. Across the U.S., new listings were down by 28% YoY in April. In the first four months of this year, almost 500,000 fewer homes entered the market compared to the same period in 2019. One major reason for homeowners not listing their properties is the lack of interest in foregoing their lower mortgage interest rates. Homeowners on the West Coast are also worried about the capital gains tax obligations on home value appreciation over $500,000. Newly pending listings declined 24.1% in March and fell by 21.2% in April. Zillow's researchers are unsure why this measure improved from March and suggested one simple explanation could be the return to more normal seasonal trends. Buyers are entering the housing market a little late this year. One other side effect of the scarce inventory is the increase in new home sales. A recent report indicated a 4.1% rise in new home sales against experts' predictions. This was the highest increase since Mar. 2022. Prospective homebuyers have turned to new homes because of affordability concerns, low inventory, and the lock-in effect. New home sales had hit a multi-year low in the middle of last year and started making a turnaround towards the end. South and Midwest gained the highest, while the North and Northeast experienced a minor dip. At the moment, new homes make up almost one-third of the inventory. Usually, it would constitute just 10%. |
