At the height of September’s correction, 303 of the nation’s 400 largest housing markets experienced monthly home price declines as measured by the seasonally adjusted Zillow Home Value Index (ZHVI). In October, 292 of these major markets experienced declines. The market numbers then fell to 245 in November and 256 in December.
Fast forward to 2023, and the correction has clearly lost geographic momentum. In January, 171 of the nation’s 400 largest housing markets registered a monthly decline in home prices. And in February, only 133 of the nation’s 400 largest housing markets registered a monthly home price decline, while 267 housing markets experienced a monthly home price increase.
To better understand the ongoing house price correction – or lack thereof – let’s take a look at the February data. (Remember, the Zillow Home Value Index only measures the value of homes in the 35th to 65th percentile, by price, in a given market.)
When mortgage rates begin to rise in 2022, Western markets like Seattle, Boise, and San Francisco are among the first places to see home prices drop. As the year progressed, and mortgage rates continued to rise, the correction slowly began to spread eastward.
However, that momentum has stalled: During the first two months of 2023, many small and mid-sized markets in the Midwest, South, and Northeast have shifted from correction mode to growth mode. Meanwhile, many Western markets, like Boise and San Francisco, continue to post declines in home prices.
Unlike the overheated Western housing market, many Northeast and Midwest markets remained close to fundamentals during the Housing Boom Pandemic. That puts the market in a better position to weather the affordability crisis sparked by last year’s mortgage rate shock.
Now that house price growth is returning to the rest of the market, does that mean the house price correction is nearing its conclusion? Experts are divided.
Going forward, CoreLogic expects the home price correction to moderate nationally, with US home prices expected to gain 3% between December 2022 and December 2023.
Meanwhile, KPMG expects the house price correction to pick up steam by the end of the year when the spring peak is over and as the economy begins to wind down. This year, KPMG expects US home prices as measured by the Case-Shiller Index to fall 8%.
“The S&P CoreLogic Case-Shiller Home Price Index is expected to decline another 8% in 2023, or 10.5% from its peak at the end of the year,” wrote Diane Swonk, chief economist at KPMG, in a new report.
Regardless of whether the house bulls or true house bears, the results will vary significantly according to the market.
Back in the early 2000s, housing speculators thought the best bang for their buck was in the fast-growing Sunbelt cities. As it turned out, that flood of investment meant that places like Las Vegas and Phoenix were further crushed when the housing bubble finally burst and led to the 2008 financial crisis.
Fast forward to this home cycle, and Phoenix is once again at the center of the story.
During the Housing Boom Pandemic, Phoenix saw home prices rise 53.4% between March 2020 and July 2022 as everyone from home flippers to institutional Wall Street firms and Airbnb hosts flocked to the market.
But when mortgage rates rose last year, Phoenix home prices became a liability. That affordability strain helped propel the market into one of the sharpest corrections in the country. Through February, Phoenix home prices as measured by Zillow have fallen 7.3% on a seasonally adjusted basis since their peak. Without seasonal adjustments, Phoenix home prices are down 10% from their 2022 peak.
If anyone describes the correction in Phoenix home prices as sharp, they should call the correction in Indianapolis, well, faint.
Through February, seasonally adjusted home prices in Indianapolis were down just 0.97% from their 2022 peak. And while Phoenix home prices fell 0.9% in February, Indianapolis home prices rose 0.1% last month.
Indianapolis has certainly seen a housing boom during the pandemic. However, it’s not a craze that extends to markets like Austin and Phoenix. And unlike those places, Indy also didn’t see a surge in supply last year. Which explains why Indy is doing better in this higher mortgage rate environment.
If you’re hungry for more home data, follow me on Twitter @NewsLambert.