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  • Writer's pictureJosemy Costa

The Housing Market is as Competitive as Ever Despite Soaring Costs

(April 2022 Market Report)

  • U.S. home values continue to grow at a record pace, up 20.9% in the past year.

  • The combination of rising prices and a spike in mortgage rates means the monthly mortgage payment on a typical home is 52.5% higher than it would have been a year ago.

  • Rising costs have not yet eased competition. Homes are selling as fast as they ever have — after only seven days for the typical home — and nearly half of homes are selling for above their list price.

Despite rising home values and mortgage rates, the housing market is as competitive as ever. Buyer demand has been strong enough to keep the market moving at a record pace, even after a massive spike in mortgage rates. Zillow economists do expect the market to begin rebalancing this spring as rising costs keep enough would-be buyers on the sidelines long enough for inventory to begin catching up with demand, but it has not yet reached that point.

Soaring costs are posing an affordability challenge

Year-over-year home value growth set a record for the 13th consecutive month in April. The typical U.S. home is worth $344,141, 20.9% higher than a year ago. That record pace of growth comes despite rising mortgage rates eating away at what home buyers can afford. The monthly mortgage payment on the typical U.S. home is 11.7% higher than it would have been in March, and 52.5% higher than a year ago, assuming a 30-year mortgage with a 20% down payment.[1]

Home values continue to grow fastest in the Sun Belt. Austin (up 37.6% year over year), Raleigh (up 36.4%), Tampa (up 35.1%), Las Vegas (up 33.3%) and Nashville (up 32.8%) are the five hottest markets in terms of annual home value growth. The coolest large markets are Washington, D.C. (up 11%), Baltimore (up 11.4%) and Milwaukee (up 12%).

To keep monthly mortgage costs the same as they would have been a year ago, today’s buyers must shop in a different price range. According to estimates from Zillow’s mortgage calculator, a buyer who can afford a monthly mortgage payment of $1,500 could have paid roughly $340,000 for a house a year ago, when mortgage rates were much lower. Today, that $1,500 monthly payment could buy a house worth about $275,000. And that is before factoring in home value growth of more than 20% during that time; a buyer would have paid about $227,500 a year ago for that $275,000 home.[2]

Competition among home buyers remains sky high

Rising costs have not yet eased competition. Homes that sold in April typically went pending after only seven days, tying a monthly record set last May and June. To put that remarkable market speed into context, in April 2019, the last spring before the pandemic, the typical home sat on the market for 24 days before an offer was accepted. This is adding pressure, together with rising prices and rates, on the buyers who remain in the market.

Nearly half (48%) of homes that sold in March — the latest data available — sold for more than asking price, indicating the buyer expected multiple bidders. That’s up from 37.5% in March 2021. More than three-quarters of homes are selling above list price in the country’s most competitive markets: San Francisco (80.4%), Seattle (77.3%) and San Jose (76.1%). With steeply rising costs, it may very well be that fewer people are trying to buy, but with bidding wars continuing to drive up prices, those in the market today are not feeling much relief.

Early signs of a more balanced market ahead

Faint signs are starting to emerge that a more balanced market is around the corner. The share of listings with a price cut crept up to 9.1%, higher than 8.6% in March and 7.8% last April. That may be a sign that sellers cannot be quite as ambitious in their pricing strategy as they could have been in recent months, giving a small glimmer of hope to buyers who are struggling to find opportunities in this market.

Inventory continues to rise as well, up 5.5% from March — the second straight month of growth. The year-over-year inventory deficit has also shrunk in each of the past three months, now sitting at -19.5%.

More inventory is both the consequence and the cause of a more balanced housing market: Because there is more to choose from, it limits the number of buyers bidding on each home and prompts sellers to price their home competitively.

Rent growth strong but slowing

Rents are also showing early signs of smoother days ahead. The pace of annual rent growth slowed for the second consecutive month. Rents are up 16.4% year over year, down from 17% annual growth in March. The typical U.S. rental unit costs $1,927 a month.

While all of the top 50 markets saw positive year-over-year rent growth, seven markets saw plateauing monthly growth: New Orleans, Atlanta, Pittsburgh, Phoenix, San Francisco, Minneapolis–St. Paul and Houston.

The fastest-growing rent prices are in Florida. Rents in Miami (up 31.7% year over year), Tampa (up 26.9%) and Orlando (up 23.7%) have grown the most over the past year. Minneapolis–St. Paul (up 6.6%), Milwaukee (up 7.3%), Pittsburgh (up 8.1%) and Buffalo (up 9.9%) are the only four of the 50 largest U.S. metros where annual rent growth is below 10%.

Looking ahead

Zillow’s home value forecast now calls for 11.6% growth through April 2023, down from a year-ahead forecast of 14.9% made in March. Zillow’s forecast for existing home sales has been lowered as well, now predicting 5.73 million sales in 2022. That would mark a 6.4% decrease from 2021. Spiking mortgage rates, inventory gains, and lower-than-expected pending home sales and mortgage application data drove the downward revision.

These downwardly revised projections would still represent a very strong housing market in the coming year. Other than this recent run of record-breaking home value growth, only during a short stretch in 2005 have home values grown faster than 11.6% annually in the history of the Zillow Home Value Index. And while 5.73 million existing home sales would be a decrease from a remarkably strong 2021, that would mark the second-best calendar year total since 2006.

[1] Principal and interest only. Property taxes, homeowners insurance and other additional costs are not included. [2] Estimated monthly mortgage payments in this example assume a 20% down payment, property tax rate of 0.88%, annual home insurance costs of $1,260 and no HOA dues. Freddie Mac Primary Mortgage Market Survey data was used to estimate prevailing mortgage rates during each period.


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