Prices Down 0.1%! NOT. A. CRASH. Rates Up

Good Gravy!

“Good gravy” is what my South Dakota grandma used to say whenever she saw or heard something absurd – and she would be screaming that now if she saw all the headlines alluding to a “housing crash.”

Zillow’s Latest Terrifying Report (Is Not Terrifying At All)

The following is from this article from Yahoo Finance: “U.S. home values fell 0.1% from June to July, the first decline in the raw Zillow Home Value Index since 2012. Home values fell last month in 30 of the 50 largest metro areas, but are still up 16% from a year ago.”

YouTubers and muckraking journalists everywhere are using this and similar reports to support their claims that the housing market is crashing, but that is hardly the case.

Dan Habib (Barry’s son) put this all in perspective today in his MBS Highway video. (I can’t share the videos unfortunately because they are behind a paywall.)

Dan pointed out that Zillow’s methodology can be very misleading for several reasons.

  1. Median Homes Do Not Equal Average Home Values. Zillow focuses on “median” or midpoint home values. If more lower-end homes than higher-end homes come onto the market than in previous months, the median home value will necessarily decline even if average prices are rising.
  2. Index Includes List Prices. Zillow’s Home Value Index accounts for list prices too, and given that there have been price reductions everywhere, it misleadingly indicates that home values are falling. But, if someone buys a home for $1 million and lists it for $1.5 million, and then reduces the price to $1.25 million, that does not indicate that her home has depreciated.
  3. Index Accounts for Pace of Sales. Zillow’s Home Value Index accounts for the pace of sales too. So, if sales slow down, Zillow’s index will be lower too – even if prices are holding up.

Zillow Still Predicts Appreciation Over The Next 12 Months!

More interestingly, Zillow is still predicting 2.4% appreciation over the next 12 months. This is down sharply from previous predictions of close to 8% appreciation, BUT 2.4% APPRECIATION DOES NOT A CRASH MAKE! 😊

Dan further stated that he expects the market to rebound when rates inevitably drop in response to a slowing economy.

And yes, we might see some more cooling off in some of the frothier markets like Boise, Phoenix, and San Jose, but some cooling off is probably a good thing because all of our pre-approved buyers can now find homes.

U.S. Housing Market Short 5 Million Homes

Finally, the NREP reminded us today in this short video that the U.S. is currently SHORT 5.2 million homes for what is needed to constitute a “healthy housing market,” and this is up from 3.8 million in 2019.

Further, this will be hugely exacerbated by all of the builders pulling back on production right now.

Scary Headlines Get Clicks

Because scary headlines get way more clicks than happy headlines, I am going to continue to share perspectives like the ones above to prevent even more buyers from getting cold feet … for no reason.

Jay Voorhees
Founder | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167

    Get your instant rate quote.
    • No commitment
    • No impact on your credit score
    • No documents required
    You are less than 60 seconds away from your quote.

    Resume from where you left off. No obligations.