Zillow Reports Return to Accelerating Home Price Appreciation

Year-over-year home value growth rose from the month prior in February, with the typical home value in the U.S. now at $247,084, a 3.9% increase from a year ago, according to the February Zillow Real Estate Market Report.

U.S. home values have not fallen on an annual basis since summer 2012, and have only done so in a few of the most expensive markets in recent years. But the rate of annual appreciation nationally had slowed in each month between May 2018, when they grew 6.7% year-over-year, and January 2020, when they grew 3.8%.

This turn in home values comes as for-sale inventory again fell to a new low in Zillow data that dates back to 2013. Inventory is down 8.4% in the U.S. and 29.4% in Phoenix, which had the biggest annual gain in home values among the 35 largest U.S. metros. This continued tightening of homes on the market, along with incredibly low mortgage rates that make monthly payments more affordable, continues to be a key factor putting pressure on prices as buyers compete for the limited homes that are available.

The economic impacts of the coronavirus pandemic were only beginning to be revealed as February ended, so it is possible this re-acceleration will be a blip, not a trend, and reverse itself in the coming months. The U.S. economy has entered a bear market, with major financial indices falling by more than 25% since the beginning of the year. Zillow research on past pandemics has shown that home sales activity slowed during the outbreak, sometimes significantly, but prices remained stable and the market recovered quickly once the outbreak subsided.

If the U.S. were to fall into an economic recession, that would dampen the outlook for housing somewhat as that often means a recovery will be slower and more prolonged. But it’s unlikely a recession now would have the same impact on the housing market as the Great Recession did in the mid-2000s. Previous research by Zillow about other economic downturns over the past 23 years shows that, historically, home values tend to rise faster than inflation during a recession.

“Zillow’s February numbers show the strong position the housing market was in just ahead of the novel coronavirus’s spread in the United States, and the subsequent stock market downturn,” said Jeff Tucker, economist at Zillow. “In February we saw inventory stuck near record lows, which was finally enough to reignite home price appreciation after a cooler 2019. Home buyers were flocking to the market this winter with their finances buttressed by the longest economic expansion in memory, and with their purchasing power magnified by rock-bottom mortgage interest rates. Now, though, as so much is uncertain, we are entering uncharted territory for the housing market.”

Home value growth accelerated from January to February in 23 of the 35 largest U.S. metros. The acceleration was greatest in expensive West Coast markets, led by San Jose, which saw positive annual home value growth for the first time since January 2019. Home values grew the most year-over-year in Phoenix (+7%), Columbus (+6.3%) and Charlotte (+5.8%).

Mortgage rates listed by third-party lenders on Zillow rose to a peak of 3.91% on February 28 after starting the month at 3.75%. Rates reached their monthly low on February 27 at 3.7%. Zillow’s real-time mortgage rates are based on thousands of custom mortgage quotes submitted daily to anonymous borrowers on the Zillow Mortgages site by third-party lenders and reflect recent changes in the market.