Housing Market Is Cooling And That’s Great News For Potential Bubbles: Zillow
U.S. housing prices rose 8.5% through August even as higher mortgage rates hurt demand, according to a Federal Housing Finance Agency report today.
Though home prices continue to rise, real estate research from Zillow (Z) finds evidence the housing market is cooling. The pace of home value appreciation slowed in the third quarter to 1.2%, about half the pace of the second quarter of this year. And as Stan Humphries, chief economist at Zillow, tells The Daily Ticker in the above video -- that’s “a pretty good thing.”
Why?
“We have been wanting to see a little bit of moderation in the pace of home value gains because they’ve been rising at a very fast pace off the bottom. And in order to get back to a normal pace we need to start to see things moderate,” he tells us. “The normal pace in the housing market looks more like 3.5% [growth in values] a year, so in the past several months we’ve been rising at almost twice that pace.”
Related: Is the Housing Recovery Still On Track?
In other words, you want the housing recovery to be sustainable so in some cases (like now) a slowdown is good.
Zillow’s research also finds the larger decreases in home value appreciation came in markets that they’ve been watching as potential bubbles – including San Francisco, San Diego and Los Angeles. So is Humphries confident we’re staving off any bubbles at this point? He says yes.
Related: Inside Luxury Tiny Homes: Millennials, Retirees Bucking Mortgages
Home affordability is also declining. A new report from Interest.com finds it’s harder for a median-income household to afford a median-priced home in all of the country’s top 25 real estate markets this year compared to a year ago. That’s because home prices have risen close to 16% along with mortgage rates while income has not kept pace (income has risen by about 3%).
Related: 'Housing Bubble' Deflated By Rising Rates
Check out the video to see how Zillow's findings on home values impact affordability, and also, why Zillow sees mortgage rates going to 5% late next year.
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