After their February call that U.S. home prices had hit bottom, Zillow economists raised their home price forecast each month through August. At that point, they predicted home prices would climb 6.5% over the next 12 months.
Last month, they issued a downward revision. And this month, they did it again.
Zillow economists predicted this week that home prices would rise 2.1% between September 2023 and September 2024. That compares to their prediction last month that home prices would rise 4.9% between August 2023 and August 2024.
“Zillow’s forecast of the nation’s typical home value was revised downward this month due to an uncharacteristic month-over-month dip in September and mortgage rates climbing ever higher,” they wrote this week.
Zillow economists have come to terms with the likelihood that a resilient labor market will mean a longer-than-expected period of elevated interest rates. With the firming of rates, the housing market has lost some steam.
“Elevated mortgage rates are weighing on new listings with ‘rate-locked’ homeowners largely opting to hold onto the relatively low monthly payment associated with their current home,” wrote Zillow economists.
They now expect national home prices to rise 3.3% in 2023, down from the 4.3% they predicted last month.
“While many home shoppers are priced out or limited in what they can afford, there are enough active buyers to keep competitive pressure on for the few homes available for sale,” they noted.
Morgan Stanley, for its part, recently made a more dramatic change to its 2023 outlook. While its analysts previously expected home prices to fall for the year, they now say prices could rise by up to 5%. The reversal, made in a research note earlier this week, comes as mortgage rates continue to rise.
The 30-year fixed mortgage rate hit 8% this week, according to Mortgage News Daily. Rates haven’t been this high in decades.
“It is likely they will stay around that level…in the last few months of the year, especially if the Fed does raise rates one more time before the year is done,” Mark Fleming, chief economist at Fortune 500 financial services company First American, told Fortune this week.
The Fed is keeping open the possibility of further rate hikes. Andrew Levin, a former senior Fed adviser who’s now a professor at Dartmouth College, recently told Bloomberg: “There is a very substantial risk that they will need to do more.”