Although the typical home value in the U.S. is $251,598, up 4.3 percent year-over-year compared to April’s growth of 4.2 percent, in May the U.S. home value growth rate experienced its largest one-month slowdown since March 2019, according to the Zillow Home Value Index.
Home values grew by 0.41 percent month over month in April, but in May that metric dropped to 0.35 percent. According to Zillow, the slowdown may be an indication of home value declines in the coming months.
Zillow economic forecasters currently anticipate a 1.8 percent drop in home prices through October 2020, down from home value highs in February, with a slow price recovery by spring 2021. Year-over-year change is anticipated to bottom out at -0.7 percent.
“Homebuyers returned to the market earlier than might have been expected given the state of the economy, finding a market starved for inventory because of seller uncertainty,” Skylar Olsen, Zillow’s senior principal economist, said in a statement.
“This improved demand has supported home prices and appears to have given sellers a confidence boost as new listings have slowly picked up,” Olsen added. “The next question housing will face is whether this growth can continue after demand built up during housing’s brief pause in the pandemic’s early days runs its course. It’s likely housing will feel the broader economy’s downturn eventually, though to a mild degree, and home values will fall in the coming months.”
The May home value growth slowdown impacted 27 of the 35 largest U.S. metro areas, most significantly in some of the more expensive metros (San Francisco, San Jose, Los Angeles, Seattle), hot markets (Phoenix, Columbus, Indianapolis) and areas with a high number of COVID-19 cases (Detroit and Pittsburgh). In five metros, home values actually fell month over month: San Francisco, San Jose, Pittsburgh, Los Angeles and Sacramento.
Annual rent growth also slowed in May for the third month in a row, up 2.2 percent year-over-year to $1,657 after experiencing growth of 3.4 percent annually in March. That rate marks the lowest annual growth rate since 2014. The slowdown affected 27 large metro areas, and rents fell in New York and San Jose.
Inventory made modest growth in May with for-sale listings increasing by 1.5 percent from the previous month to about 1.47 million. However, that number is down 9.6 percent year-over-year, and well below last year’s growth rate of 4.5 percent between April and May.
Buyer demand has remained strong with newly pending sales up 28.5 percent month over month during the first week in June and page views on homes for sale on Zillow up 41 percent year-over-year at the end of May. However, unemployment rates may soon have an impact on demand.
“As the pool of willing and able buyers that remain on the market from the immediate pre-pandemic period dries up, demand is likely to wane — especially if unemployment remains high,” Olsen said in Zillow’s May 2020 Market Report.