To read the headlines over the last year, the sky caved in on real estate markets across the country.
But does the data support the narrative that home prices collapsed? That we experienced a housing market correction? And if so, has it reached the bottom and started recovering?
Let’s dig into the data to find out.
Mixed market movements
It’s worth reiterating that there’s no such thing as a “nationwide housing market.” There are only local real estate markets, each with their own trajectory.
If you want to talk about nationwide trends, you have to average together all the hundreds of local market performances.
Year over year, exactly 200 of the approximately 900 U.S. cities tracked by Zillow saw home prices decline. Most of those fell by 0-3 percent. Four of those saw double-digit declines in property prices (Breckenridge, Colorado, Sandpoint, Idaho, Austin, Texas and Ukiah, California).
The other 700 or so cities saw an increase in real estate values and some increased dramatically. Thirty-two of them saw double-digit growth in property values.
As a nationwide average however, property values grew by a modest 1.15 percent. But this snapshot doesn’t tell us which direction housing markets are trending.
Fewer falling markets
In the fourth quarter of 2022, a troubling 253 cities had experienced quarterly home price drops.
That number fell to 224 cities in the first quarter of 2023 and then fell dramatically to 95 cities in the second quarter of 2023. There are more cities and towns with seller’s markets vs. buyer’s markets across the U.S.
In other words, the bulk of those cities that had seen quarterly price declines have since hit bottom and started increasing again. Last month, home prices hit their second-highest level ever.
You can also see the housing rebound in other measures. Last quarter saw home sellers’ profits increase for the first time in a year.
What about rents?
Some pundits have declared that rents are the next housing-related market to fall.
And to be fair, rent growth has slowed considerably over the past year. Nationwide, the average property rent rose by 4.11 percent over the last year, according to Zillow. That’s approximately half the rent growth of the previous 12 months.
By some measurements, rent growth has stalled completely.
But rents rarely fall even in recessions. Over the past year, just 14 cities have seen rents decline. Most of those saw rents dip by less than 2 percent, and none of them saw rents fall by more than 5 percent. Hardly a bubble bursting, eh?
That’s why rental properties offer predictable cash flow, even through economic downturns — if you know how to calculate cash flow accurately.
Even so, more cities have seen quarterly rent declines than annual. Thirty-five cities saw dips in rent over the last quarter. While it doesn’t disturb me as a real estate investor, it’s still a trend worth watching.
So, have markets hit bottom?
While my crystal ball is no clearer than yours, I don’t see home prices falling further in most U.S. markets.
Some U.S. cities did see property prices fall over the past year. But as you look at quarterly price movements, fewer cities have seen falling home values over each of the last few quarters. Housing inventory remains low, and housing starts show no signs of catching up on the inventory gap any time soon. The combination of low inventory, high prices, and high interest rates is likely also pinching homeownership rates.
All bets are off, however, if the country enters that recession we’ve been promised for the last two years.
Much as I’m happy to prognosticate, I no longer let myself fall into the trap of trying to time the market. Plenty of smarter, better-informed people than you and I can’t accurately predict housing markets (or stock markets, or any other market for that matter). If they can’t do it, it’s hubris to think you and I can time the market.
Personally, I invest money in fractional real estate investments each month as a form of dollar cost averaging. While multifamily syndications dropped in popularity in late 2022 and early 2023, I know I’ll come out ahead in the long term by dollar cost averaging — even if the market occasionally dips in the short term.
G. Brian Davis is a real estate geek and co-founder of SparkRental.
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