BAM Key Details:

  • The latest Zillow® market report shows home prices are stabilizing as home sales have increased, while sellers continue to hold off, limiting inventory and igniting competition for well-priced homes. 
  • Buyers took advantage of lower mortgage rates in January, but with the rate increase in February and another Fed rate hike likely this spring, many are left wondering whether buying or selling now is smarter than waiting. 

Home price declines are leveling off as buyers take advantage of slightly lower mortgage rates. While they’ve jumped 0.75% this month, they’re still below last fall’s rates (at least at the time of writing this post).

The question on many minds now is just how long that will last. 

The latest Zillow market report shows home values in the U.S. have grown 6.2% compared to a year ago—and 39% since 2020. Buyer demand increased significantly in January, with mortgage rates around 6%. 

And with inventory at the second-lowest January level on record, buyers encountered fierce competition for well-priced homes in desirable neighborhoods. 

Sellers in those markets could still expect a decent return with a sale. But now, with interest rates at around 6.8%, finding a new home with a manageable monthly payment is the challenge that keeps many of them in waiting mode. 

Mortgage rates are the catalyst

Whatever mortgage rates do next will have a huge impact on both supply and demand. 

The typical U.S. home value slipped just 0.1% from December to January, resting at $329,542, 4.1% lower than the peak value set seven months ago in July 2022. 

Despite that modest drop, home values remain 6.2% higher than a year ago—and 39% higher than in 2020. 

New listings in January—at 230,0000—were the lowest on record since Zillow started tracking the number in 2018, falling 17% from the then-record low of January 2022 and 30% from the 2018-2021 average of roughly 330,000.

If mortgage rates continue to rise, which seems likely, new listings could hit a new low, with predictable consequences for housing affordability. 

Buyers are returning; sellers not so much

Buyer activity amped up significantly in January compared to last fall. It was looking more like a normal, pre-pandemic January. 

Newly pending listings hit a low point last November, falling 38% year over year. In January, they were down only 20% from a year ago and were right in step with January 2020. 

Buyers who had been priced out of the market when mortgage rates hit a peak of 7.08% last November were encouraged by January rates around 6%, saving them hundreds of dollars a month. A new mortgage for a typical U.S. home, assuming a 5% down payment, cost $2,310 last October; that number dropped to $2,100 by the end of January 2023. 

To be fair, that payment is still well above the $1,127 a month buyers paid in January 2020. But today’s motivated buyers will take whatever savings they can get. 

Yet while more buyers are returning to the market, sellers are looking at mortgage rates and deciding to hold off, driving up competition for well-priced homes in desirable areas. 

That said, we’re not likely to see the nationwide bidding wars of 2021 and early 2022. It took a median of nine days for a home to sell in January 2022 and 17 days in January 2021, compared to 31 days in January of this year, which is still better than the pre-pandemic norm of 40-plus. 

Rising mortgage rates stunt supply as well as demand

Moving to February, in the first two weeks, mortgage rates rocketed by as much as 0.75%, putting an abrupt end to the downward trajectory we saw (and welcomed) in the first month of 2023. 

Continued surges in mortgage rates would stunt supply as well as buyer demand. Homeowners locked into very low mortgage rates will be in no hurry to trade those in for 6.75%

Meanwhile, buyers are already faced with housing costs that strain their budgets and make saving money all but impossible. With 64% of Americans living paycheck to paycheck, fewer can afford to buy a home at 6% rates, let alone anything higher. 

Sellers waiting for buyer demand to peak so they can get the best price for their listings may be waiting for quite a while. 

The risk for sellers waiting till April or May to list is that no one knows what mortgage rates will do in the meantime. Buyers may return to hibernation if last month’s mortgage-rate thaw turned out to be a false spring.

Jeff Tucker

Zillow Senior Economist

The Zillow report providing this data is the first monthly report that refers to the recently launched version of the Zillow Home Value Index (ZHVI), which now relies on the neural network-driven Zestimates formula produced by Zillow for nearly every home in the U.S. 

Like the neural Zestimate, the new ZHVI now reflects seasonal changes more accurately, with prices trending up in the spring and down in the fall and winter. 

Top takeaways for real estate agents

We can guess, based on the likelihood of another Fed rate hike, that mortgage rates will probably rise still further before we see another downward trend. 

All we can really be certain of is what’s going on in the market right now. And consumers rely on real estate professionals to understand how recent changes could impact the outcome of a real estate transaction they’re considering. 

Show them what you can and are willing to do to make sure they get the best value from their experience as your client. Leave them better off than they were before they met you.