Housing Market Shows Welcome Signs of Cooling in Q3

Zillow

The pace of home value appreciation nationwide is slowing, and has even turned negative in some areas. But rather than being a bad sign for housing, this slowdown was expected and is, in fact, welcome in a handful of markets, according to the third quarter Zillow Real Estate Market Reports.

The U.S. Zillow Home Value Index stood at $163,000 as of the end of the third quarter, up 6.4 percent year-over-year and 1.2 percent from the end of the second quarter. But national home values in September remained the same as in August, and the pace of monthly home value growth has fallen in each of the past three months. Among the top 30 largest metro areas covered by Zillow, half showed negative monthly appreciation at the end of the third quarter. As recently as July, all of the top 30 metro areas showed positive monthly appreciation, with none exhibiting a monthly pace slower than 1 percent month-over-month.

For months, a handful of already expensive metro areas that experienced relatively modest declines during the crash, but very robust gains during the recovery — particularly in California — have flirted with being in a bubble. These markets risked potentially becoming unaffordable for typical buyers as home values grew precipitously, mortgage interest rates rose from record lows and income growth failed to keep pace. In order for homes to remain affordable and to avoid a market bubble, the pace of home value appreciation in these markets needed to slow down or even fall.

In several California metros in September, home values did, in fact, fall month-over-month, including in San Diego (-1.2 percent), Los Angeles (-1.1 percent) and San Francisco (-0.1 percent). In San Jose, another hot California metro area, monthly home values in September only grew at half the pace they did in August (down to a 0.3 percent pace from 0.6 percent).

“Far from being a negative sign, we’re relieved to see more noticeable signs of cooling in the market. If home values continued to rise as they have, relatively unchecked, we would almost certainly be headed into another bubble cycle, and nobody wants that,” said Zillow Chief Economist Dr. Stan Humphries. “This is more proof that the market recovery is entering a new phase, transitioning away from the bounce off the bottom we’ve been experiencing and finding a more sustainable level. This moderation should help consumers feel more at ease in their decisions to buy and sell, and will help keep the market balanced.”

The Zillow Home Value Forecast calls for annual appreciation rates to slow markedly over the next 12 months as moderation spreads, to an annual pace of 3.8 percent nationwide by September 2014.

Metropolitan Areas Zillow Home Value Index Zillow Home Value Forecast
Q3 2013 Month-Over-Month Change Year-Over-Year Change  Bottom in Home Values Change in ZHVI, Q3 2013-Q3 2014
United States $163,000

0.0%

6.4%

2011 Q4

3.8%

New York $354,200

-0.2%

3.7%

2012 Q1

0.0%

Los Angeles $479,400

-1.1%

19.9%

2012 Q1

10.6%

Chicago $171,800

0.0%

6.2%

2012 Q1

1.4%

Dallas-Ft. Worth, Texas $143,900

-0.1%

12.3%

2011 Q4

3.3%

Philadelphia $190,300

-0.5%

3.0%

2012 Q2

0.2%

Washington, DC $342,600

0.1%

8.8%

2012 Q1

2.2%

Miami-Fort Lauderdale, Fla. $172,400

0.0%

15.6%

2011 Q4

2.1%

Atlanta $128,500

0.7%

15.7%

2012 Q3

5.2%

Boston $343,200

0.5%

10.2%

2011 Q4

2.9%

San Francisco $629,100

-0.1%

25.0%

2012 Q1

8.1%

Detroit $96,900

0.4%

23.3%

2011 Q3

4.6%

Riverside, Calif. $248,400

1.8%

31.8%

2012 Q1

23.9%

Phoenix $184,800

1.1%

20.9%

2011 Q3

9.0%

Seattle $306,200

-0.1%

15.2%

2012 Q1

8.1%

Minneapolis-St. Paul, Minn. $199,100

0.5%

16.6%

2012 Q1

3.6%

San Diego $431,500

-1.2%

20.5%

2012 Q1

8.4%

St. Louis $128,700

-1.2%

1.8%

2012 Q1

-1.3%

Tampa, Fla. $128,100

-0.1%

16.0%

2011 Q3

4.2%

Baltimore $231,600

0.0%

6.0%

2012 Q1

2.0%

Denver $247,000

-0.2%

11.8%

2011 Q3

1.3%

Pittsburgh $112,700

-0.1%

3.8%

2008 Q4

1.3%

Portland, Ore. $259,200

0.5%

15.6%

2012 Q1

4.6%

Sacramento, Calif. $284,700

1.1%

34.1%

2012 Q1

16.7%

Orlando, Fla. $146,300

1.1%

19.5%

2012 Q1

8.3%

Cincinnati, Ohio $128,500

-0.1%

4.5%

2012 Q1

0.2%

Cleveland $114,500

-0.9%

4.1%

2012 Q1

0.6%

Las Vegas $162,300

2.9%

33.3%

2012 Q1

11.7%

San Jose $732,300

0.3%

21.6%

2009 Q2

7.4%

Columbus $132,800

-0.1%

5.7%

2012 Q1

0.5%

Charlotte $140,300

-0.1%

3.5%

2011 Q2

-0.2%

View Comments