The Housing Market Shift

The housing market stands at a pivotal turning point according to fresh Zillow analysis that forecasts a nearly 2% decline in US home values by the end of 2025. This represents the first significant nationwide price drop since 2012, signaling a fundamental shift away from the frenetic post-pandemic market conditions that drove double-digit growth and created intense competition among buyers.

Two key factors are driving this cooling trend. Housing inventory is finally increasing, giving buyers more choices and stronger negotiating positions. Simultaneously, mortgage rates remain stubbornly high, potentially reaching 6.5% later this year, significantly impacting affordability. The combination is creating a rebalancing effect as sellers adjust their expectations to the new reality.

Paradoxically, while home purchase prices may dip, rental costs are projected to increase by 3.1% through year-end. This creates a challenging dynamic where buying becomes nominally cheaper but remains expensive due to financing costs, while renting grows increasingly costly without building equity. The explanation lies in supply and demand—high mortgage rates keep potential buyers renting longer, increasing rental demand and pushing prices upward.

Geographic differences remain pronounced, with Southern states like Texas, Louisiana, and Florida potentially offering better buying opportunities, while the Northeast continues to face tight supply and rising prices. For those with long-term horizons of 7-10 years, homeownership may still represent a sound financial strategy despite current high interest rates.

Understanding these market forces—from supply constraints to regional variations—is essential for anyone navigating today's housing landscape. Whether you're looking to buy, sell, or rent, recognizing that we're in a transitional period can help you make more informed decisions about your next move. What assumptions about housing security might you need to reconsider in this evolving market?

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Episode Transcript

Speaker 1 (00:00):
Okay, let's talk housing.
Feels like it's constantly oneveryone's mind, right?

Speaker 2 (00:03):
Absolutely, whether you're trying to buy or maybe
you own a place and you'rewatching those Zillow Zestimates
.

Speaker 1 (00:09):
Oh yeah, the Zestimates Guilty.
We all are, yeah, or?

Speaker 2 (00:13):
you know, even if you're just trying to get a
handle on the economy, housingis huge.

Speaker 1 (00:17):
It really is.
So the big question we want todig into today, based on some
fresh analysis are home pricesfinally starting to slow down
that relentless climb?
Is it taking a breather?

Speaker 2 (00:29):
That's exactly it.
We've been looking closely atZillow's latest projections for
the US market and, honestly,they point towardsa pretty
interesting shift.

Speaker 1 (00:38):
Okay.

Speaker 2 (00:39):
So our mission really in this deep dive is to unpack
what Zillow's seeing we'retalking, national home values,
mortgage rate forecasts, what'shappening with rent the whole
picture, whole picture, andfiguring out what it might mean
for you, depending on where youare and what you're hoping to do
.

Speaker 1 (00:55):
All right, let's start big picture.
Then the national view.
What's the main headline fromZillow?
That kind of jumps out.

Speaker 2 (01:00):
Well, the most striking thing is their
projection for a nearly 2%decline in US home values by the
end of 2025.

Speaker 1 (01:07):
Wow OK, a decline, not just a slowdown.

Speaker 2 (01:10):
A decline and while you know 2% might not sound
massive on its own Right, it'sactually pretty significant in
context.
You have to go all the way backto 2012 to find the last time
we saw a comparable nationwidedrop 2012.

Speaker 1 (01:23):
OK, that puts it in perspective.
That was a totally differentmarket era.

Speaker 2 (01:26):
Exactly so.
This isn't just a minor blip,they're forecasting.

Speaker 1 (01:30):
So what is a projection like that?
Even if it's just under 2percent, what does it suggest
about the market's overall vibe?

Speaker 2 (01:36):
It strongly suggests we're moving away from those
what's called freneticconditions we saw recently.

Speaker 1 (01:42):
Frenetic is a good word for it, the post-pandemic
craziness.

Speaker 2 (01:45):
Totally that period of like double digit annual
growth bidding wars everywhere.
This projection signals adefinite cooling.
It points towards maybe ahealthier balance returning
between supply and demand.

Speaker 1 (01:59):
A rebalancing, Okay.
So what's driving that?
Is it just more houses finallycoming onto the market?

Speaker 2 (02:03):
That's a big part of it.
Yes, we're definitely seeing anincrease in supply, more homes
listed for sale.

Speaker 1 (02:09):
Which gives buyers more choice.

Speaker 2 (02:10):
And more bargaining power potentially.
That's the first key factor.

Speaker 1 (02:13):
Okay.
And the second, it has to bemortgage rates.
Right, you got it.
Mortgage rates.
They're high and Zillowactually anticipates they could
tick up even further, maybehitting around 6.5% later this
year.
Oof 6.5%, that really bitesinto affordability.

Speaker 2 (02:29):
It absolutely does.
It just makes those monthlypayments so much higher.

Speaker 1 (02:33):
So higher rates mean fewer people can afford to buy,
or maybe they just decide towait it out.

Speaker 2 (02:38):
Precisely, the pool of buyers shrinks or at least
becomes more cautious, and whensellers face fewer offers or
offers that are lower than theyhoped, they have to adjust their
expectations.
They have to lower the priceExactly.
They start to realize themarket has shifted.

Speaker 1 (02:52):
Okay, that logic tracks, but here's something
that caught my eye in the Zillowanalysis Even with this
potential price dip and the highrates, there's still
forecasting a rise in the numberof actual home sales.
How does that work?

Speaker 2 (03:06):
Yeah, that's a great point.
It seems a bit counterintuitiveat first, doesn't it?

Speaker 1 (03:10):
It does Fewer buyers.
Maybe lower prices, but moresales.

Speaker 2 (03:15):
I think it suggests the market isn't seizing up.
It's more like it's adjustingadapting.
We're seeing different behavior.
Buyers aren't just vanishing.
Maybe they're being morecareful, more strategic, taking
their time.

Speaker 1 (03:28):
And sellers.

Speaker 2 (03:29):
Sellers are increasingly getting the message
they need to price thingsrealistically for this market,
not last year's market.
So Zillow projecting a what wasit?
3.3% increase in sales volume.
Yeah, 2.3%, it means deals arestill happening.
People are finding a way tomake it work just under these
more challenging conditions.

Speaker 1 (03:49):
More cautious conditions?
Ok, so buying might getslightly less expensive.
In terms of list price, maybe,but what about the flip side,
renting?
Because rents usually feel likethey only go one way.

Speaker 2 (03:59):
Ah yes, the rental market, and you're right to
bring it up, because Zillow'sforecast there is well, it's
almost the opposite trend.

Speaker 1 (04:05):
Oh, how so.

Speaker 2 (04:07):
While they see that nearly 2% potential drop in home
purchase prices, they'reforecasting a 3.1% increase in
rental costs by the end of theyear.

Speaker 1 (04:16):
Wait, hang on.
Buying gets a bit cheaper butrenting gets more expensive.
That feels it's paradoxical.

Speaker 2 (04:23):
It does seem contradictory, but there's an
economic logic to it.
Think about supply and demandagain.
Okay, when buying a homebecomes more expensive or
riskier, mainly because of thosehigh mortgage rates, we talked
about what happens.

Speaker 1 (04:35):
Well, fewer people buy, I guess.

Speaker 2 (04:37):
Right.
Or at least people who mighthave bought decide to keep
renting for longer.
Maybe they can't quite make thenumbers work for a purchase now
, or they want to wait and seeif rates come down.

Speaker 1 (04:48):
Ah, okay, so more people staying in the rental
pool increases demand forrentals.

Speaker 2 (04:53):
Exactly Increased demand without a proportional
surge in rental supply pushesrental prices up.
It's a classic squeeze.

Speaker 1 (05:01):
So even if a home's list price dips a bit, the
actual cost of owning is stillhigh because of borrowing costs.

Speaker 2 (05:07):
Correct.
Well, the alternative rentinggets pricier and you're not
building any equity.

Speaker 1 (05:12):
Yeah, that paints a pretty tough picture for people
trying to figure out their nextmove.
So we know real estate isalways local, right, location,
location, location Always.
Does Zillow's analysis get intothose regional differences?
Are some places going to feelthis shift more than others?

Speaker 2 (05:28):
Oh, absolutely.
Geography is still king here.
Zillow actually calls out a fewstates Texas, louisiana,
florida as places that currentlyhave relatively more affordable
housing stock overall.

Speaker 1 (05:42):
Interesting the South generally.

Speaker 2 (05:44):
Generally yes, and within those states, they
highlight specific metro areasThink Miami, Jacksonville, Tampa
, New Orleans, even Memphis asplaces where buyers might find
more, let's say, bargains.

Speaker 1 (05:58):
Bargains.
Why there specifically?

Speaker 2 (06:00):
It seems to be a combination of factors, maybe a
bit more inventory buildup inthose markets recently, plus
their prices were historically abit lower to begin with
compared to, say, the coasts.

Speaker 1 (06:09):
So if you're house hunting in Jacksonville or New
Orleans, you might actually seeprices softening a bit more.
More room to negotiate.

Speaker 2 (06:15):
That's the potential Zillow sees.
Yes, More supply meetings,slightly cooler demand could
lead to downward pressure onprices there.

Speaker 1 (06:23):
But what about other regions like the Northeast?
It always feels like adifferent planet there.

Speaker 2 (06:27):
Yeah, and Zillow's forecast reflects that.
The outlook for the Northeastis quite different.

Speaker 1 (06:32):
How so Still going up ?

Speaker 2 (06:34):
Pretty much.
They anticipate that factorslike really tight housing supply
, consistently strong buyerdemand and just the lack of
space for much new constructionAll that is likely to keep
prices climbing in that region.

Speaker 1 (06:50):
So no relief in sight for Boston or New York buyers
probably.

Speaker 2 (06:53):
Probably not the same kind of relief you might see in
some of those southern cities.
The dynamics are just verydifferent Persistent demand,
limited inventory.

Speaker 1 (07:01):
Right, okay, so let's pivot to the timing question.
For someone not looking to flipa house but thinking long-term,
like maybe staying put for 7,nine, 10 years, does this
analysis say anything aboutwhether now is still a decent
time to buy, despite theinterest rates?

Speaker 2 (07:16):
That's a crucial question and Zillow's
perspective, broadly speaking,is that yes, for those with a
longer time horizon,homeownership likely still
offers significant financialrewards.

Speaker 1 (07:28):
Even with rates at 6% or potentially higher.

Speaker 2 (07:31):
Even with those rates , their thinking seems to be
that while rates are high now,they might not stay this high
forever.
They could stabilize, maybeeven decrease down the line.

Speaker 1 (07:41):
So the idea is to lock in the property itself now,
even if the financing isn'tideal, and hope to refinance
later or just ride it out.

Speaker 2 (07:49):
Kind of it's about securing the asset before prices
potentially start climbingsignificantly again in the
future.
You weather the higherborrowing costs in the short
term for the potential long-termappreciation and equity
building.

Speaker 1 (08:01):
Okay, so they're differentiating between someone
trying to make a quick buck, theswift flippers as they put it.

Speaker 2 (08:06):
Yeah, this advice isn't really for them.

Speaker 1 (08:08):
Right.
It's for the more stablelong-term homeowner who can
handle market ups and downs.

Speaker 2 (08:13):
Precisely For that type of buyer.
Zillow suggests that even thismarket with its challenges could
still be a reasonable entrypoint if the long-term
financials make sense for them.

Speaker 1 (08:23):
Okay, this is a lot to process.
Let's try to boil it down.
If you had to summarize the keytakeaways from this Zillow,
deep dive for someone listening,what would they be?

Speaker 2 (08:32):
All right Key points.
One nationally expect a smalldip, maybe close to 2%, in home
purchase prices by end of 2025,driven by more supply and high
rates.

Speaker 1 (08:44):
OK, dip in purchase price.

Speaker 2 (08:46):
Two paradoxically expect rents to keep rising,
maybe around 3% this year, asbuying remains costly.

Speaker 1 (08:52):
Right About cheaper.
Maybe Rent pricier.

Speaker 2 (08:55):
Three huge regional differences.
The South places, like Texas,florida, louisiana, might see
more buyer opportunities orprice softening.

Speaker 1 (09:01):
But not the Northeast .

Speaker 2 (09:03):
Probably not.
Northeast likely stays tight.
Prices keep climbing due to lowsupply and high demand.

Speaker 1 (09:07):
Got it.

Speaker 2 (09:08):
And the last point Four for long-term buyers people
planning to stay put for manyyears.
Zillow still sees homeownershipas a potentially valuable move,
despite current high interestrates.
Lock in the asset basically.

Speaker 1 (09:20):
So it really comes down to your personal situation,
doesn't it?
Your time frame where you wantto live your financial runway?

Speaker 2 (09:26):
Absolutely.
There's no single answer.
Timing, location and your ownlong-term goals are critical for
navigating this market, whetheryou're looking to buy, sell or
just trying to find a decentrental.

Speaker 1 (09:37):
Understanding these bigger forces of supply rates,
regional trends.
It's essential for making asmart move in what's clearly a
market in transition.

Speaker 2 (09:47):
Definitely a period of adjustment.
Things are shifting.

Speaker 1 (09:49):
This has been super helpful, really cutting through
some of the confusion.
It shows just howinterconnected everything is.
So, thinking about all theseshifts, the potential price dip
versus rising rents, thenorth-south divide, it leaves me
wondering what assumptions thatwe've maybe held for a long
time about the best path tohousing security.
What assumptions might we needto rethink now?

Speaker 2 (10:12):
That's a great question.
Definitely some food forthought there, as the landscape
keeps evolving.