Zillow analyst on whether home prices can keep climbing

Elissa Branch: Hello and welcome back to “HousingWire Daily.” I’m Elissa Branch, and today I’m joined by Nicole Bachaud, economic data analyst at Zillow. Welcome to the show, Nicole.

Nicole Bachaud: Thank you so much for having me, Elissa.

Elissa Branch: Of course. Our discussion today is going to focus on Zillow’s August 2021 market report that looks at some of August’s numbers like home appreciation growth and inventory. But before we get into the report, and this is everybody’s favorite question, Nicole, can you, kind of, give some background about yourself, like what you studied, and, kind of, what you do over at Zillow?

Nicole Bachaud: Yes. So I studied economics at Seattle Pacific University, and I’m a data analyst on the economic research team at Zillow. I do research on everything happening in the housing market, why it’s happening, and particularly I do a lot of research on different demographic groups, and how different aspects of the housing market impact, different racial groups, genders differently, age groups, and all sorts of other intersections of those to, kind of, get a better understanding of what makes up the housing market and how it impacts people.

Elissa Branch: That’s quite interesting. We’ve had a lot of people on one of our series who look a lot at housing gaps and, like, demographics. And so I just think that’s very interesting work in the sector. And, Nicole, you are the author listed on the Zillow website for this report, so you are the perfect person to talk to.

First, let’s look at some month-over-month numbers. There has been a continual monthly increase in home value appreciation since January, since the beginning of this year. And while July had a 1.97% month-over-month growth for home appreciation, we saw that dipped down just a little bit in the month of August to 1.75%. This is all according to the report. So what do you think drove this dip in the month of August?

Nicole Bachaud: So I think the first thing that I want to mention here is, when we’re talking about this, kind of, pullback on month over month appreciation, it’s important to note that 1.75% monthly appreciation for August is still the third highest monthly appreciation we have on record back to 1996. So this is still a really fast rate while it is a little bit, you know, slower than the July monthly appreciation number.

That being said, we’re seeing some early signs that overall appreciation year over year is going to start to pull back in the next couple of months in a similar way. A lot of that has to do with the fact that there’s more inventory coming on to the market now. So as sellers are returning to the market and have more confidence in their housing decisions, we’re going to see more inventory as well as, as new constructions start to pick up, we’re going to see new inventory coming on, and that’s going to help to moderate those prices further.

We’re seeing indications of listings of price cuts increasing, so more homes are dropping their listing price before selling. That’s another indication that things are going to start to maybe moderate on the price appreciation side moving forward.

Elissa Branch: You touched on, even though August numbers are a little bit lower than July, it’s still, what, the third highest you guys have seen. And so in that same vein, looking at annual growth, annual U.S. home value appreciation is still up 17.7% year over year. And so you, kind of, touched on this a little bit as well, but do you think August numbers are, like you said, more indicative of, like, a general slowdown in the market for the months to come, or did they represent of, like, the typical seasonal changes we see for this time of year?

Nicole Bachaud: Yeah, so as of August, year over year appreciation value at 17.7% is the record that we’ve seen ever in our data, you know, over 25 years of data. I would be cautious to say that this is showing us that there is a slowdown right now. We’re just getting signs that moderation is going to come in the coming months and throughout next year. With that, we’re still expecting an August next year to see somewhere around 11% or 12% appreciation. So we’re still going to have a really fast housing market as we’re beginning this gradual pullback towards those normal levels.

We are starting to see maybe some early signs of a new seasonality, right? We typically see the housing market cooling off in the fall and winter. People have their kids back in school. There’s weather that’s setting in a lot of parts of the country that’s, kind of, adverse to moving for a lot of folks. And so we typically don’t see as much movement in housing throughout those cooler months of the year.

So we’re probably expecting to see somewhat of a, you know, typical seasonality change here. It’s just going to be at a much lesser degree than we typically see. We’re still going to have a really tight housing market in terms of inventory. We’re still going to see prices increasing at really rapid rates. So it’s still going to be a tight market. It’s just maybe going to be a little bit better or maybe more beneficial for buyers than the spring and summer this year.

Elissa Branch: The report mentioned that inventory is back up. This is, like, the fourth month of this increase, so August had a 4.1% increase, but even though it’s back up, it’s still obviously quite lower than this time last year for most markets. The reports also mentioned—and I found this incredibly interesting—that Austin and D.C. have more inventory currently than they did a year ago. Maybe I’m biased because I’m from Texas, but Austin, in particular, hasn’t had too much of this inventory problem but is still one of the most notable markets for these, like, really substantially high price increases. Austin was, like, 44.8% annual home price appreciation. So are there any, like, discernible reasons or factors for this trend in areas like Austin and D.C.?

Nicole Bachaud: So Austin and D.C. both, particularly D.C., had really low inventory in the beginning and through the summer of last year compared to historical norms. Both of these markets saw inventory dropping a little bit sooner than the rest of the markets in the country. And so they’re starting from a lower base. So when we see positive year over year, you know, inventory numbers, that’s starting from a really low level. If you look at August inventory over the past several years, where we’re at right now is still lower than it has been in the past. So, you know, those things are things to keep in mind in terms of what that inventory looks like.

Additionally, you know, one of the reasons that Austin, in particular, why we’re seeing such high growth levels while we have, you know, a little bit of reprieve on the inventory side is that there’s a lot of existing homeowners who are, you know, able to take advantage of the home value increases they’ve seen over the last year and a half. You know, we’ve had existing homeowners that are watching their home value skyrocket. Now they’re able to cash in on that. Whether that means, you know, moving to a larger house, you know, buying up, moving to another area, or whatever, we’re seeing a lot of existing homeowners taking advantage of the high prices in the market right now.

Elissa Branch: That’s interesting. I did an interview a couple weeks ago where we’re looking at numbers, and it’s very important to keep in mind that whenever we’re looking at year over year for 2020, it’s incredibly different than most other preceding years. So we should have a different perspective when it comes to a lot of these numbers.

Nicole Bachaud: Yeah, certainly.

Elissa Branch: Also, we wanted to talk about rent a little bit. Rent also increased substantially over the past year compared to other years. And it’s about $200 more a month on average in August 2021 compared to August 2020. Similar to our home appreciation numbers that we talked about earlier, month-over-month growth has dipped a little but is still higher year over year. I’m curious as to why we’re seeing, like, the renter market, kind of, follow the same patterns and trends as, like, the housing market per se, because not all of the factors are the same. So could you break that down a little bit?

Nicole Bachaud: Yeah. So in a normal, healthy housing market, we typically see the for-sale side and the rental side trending in similar directions at least. What we saw over the last year and particularly through last summer was a divergence between for-sale housing and rental housing. And that looked like the for-sale market continuing to take off, you know, appreciation being really high, home values growing really fast, and the rental market, kind of stall.

In a lot of expensive areas around the country, we saw rents actually decreasing pretty substantially. A lot of that had to do with the fact that people weren’t moving into cities because there were restrictions in place, shutdowns, jobs had a lot of uncertainty about, you know, where people were going to be permanently. And so we didn’t really see a lot of movement in the rental market. We saw people, kind of, leaving the rental market last year.

Now that things are starting to stabilize again, you know, we have amenities back open. We have economies that are, you know, functioning at their new normal level. What we’re seeing is, you know, a lot of renters returning to the market now that they have longer, you know, work from home guidance or if they’re moving back to the workplace. College campuses are reopening. So we’re seeing a lot of this movement all at once and not put a lot of pressure on rent of the past couple of months, starting back in, like, May. So, you know, early spring, early summer this year.

What we saw back in the spring and early summer this year was rent prices surpassed where we would’ve expected them to be had they grown at pre-pandemic trends. So we saw this dip, this drop back in prices, and then we saw this complete boom. As people return into the rental market, that really drove prices up superfast. So we’ve seen, you know, 7%, 9%, 11% appreciation year over year, which were just, kind of, unheard of numbers in our rent data, that we just keep breaking those records month after month now as we’re seeing all of these renters putting a lot of this demand on the market, and that’s going to play out in terms of prices as there is more competition now in the rental market as we have more people moving around from place to place.

Elissa Branch: Quick follow-up question on that. You mentioned, like, a lot of factors that have to do with rent, people moving out of the city to, like, suburbs and to more rural areas. I am curious how exactly has the whole eviction moratorium, like, debacle, kind of, factored into this as well. Is that also another factor for the, kind of, slow down and then boom for the market?

Nicole Bachaud: Yeah. So we’ve had a lot of questions about this recently. I mean, a lot of people are interested in what does the eviction moratorium mean for the larger rental market. And really it, kind of, boils down to the fact that, while there are, you know, millions of Americans who are behind on their rent and could be at risk for eviction, the number of likely evictions we expect to be much lower. You know, we predicted somewhere around, I think, 260,000 renters being evicted in the, you know, 2 to 3 month period following the end of the moratorium, which is still a lot of people. Like, those are all individual households who are going to go through this really traumatic experience, and we definitely need to, you know, increase renter assistance to support that population.

But in the overall rental market, that’s not really going to be enough to make a huge wave. It’s not going to impact prices or inventory in a way that’s really going to make a meaningful shift. So we’re not anticipating, you know, the rent increases coming from the eviction moratorium at all.

Elissa Branch: Last thing I wanted to touch on, do you or your team over at Zillow have any advice for people who were looking to either buy or sell for the remainder of the year? Economists expect a typical U.S. home value to shockingly continue to increase over the next three months for the remainder of the year. So, in your opinion, like, do you think people should be a little more cautious and wait until they get closer to 2022 or should they take advantage of these little bit early fall/dip in numbers?

Nicole Bachaud: So, you know, deciding when to buy a home or when to sell a home is a really personal decision that has a lot of factors that are outside of housing market fundamentals and metrics. That being said, for people who are trying to decide, you know, should I wait or should I transact now, there are a couple of things to keep in mind.

The first is that, you know, as we’ve been talking about, inventory has been up in the past couple of months, and we expect new inventory to come on to the market over the next, you know, months and into next year. That will give potential buyers more options to choose from. And with more inventory, it’s going to create less competition for a home. So that can definitely help, you know, ease the buying process and up somebody’s chances of finding the perfect home for them. So waiting can certainly give an opportunity to find, you know, the right home in a little bit of a less competitive market.

That being said, we’re still expecting home prices to increase pretty rapidly compared to historic norms. And so, you know, if you wait a year, that home is going to be now, you know, 11%, 12% more expensive than it is today. And so that’s certainly something to think about. We also have interest rates that are still, you know, pretty low compared to historic norms. As those begin to tick up even slightly, that’s going to impact monthly payments and really change, you know, the type of home that somebody’s able to afford. And so waiting, you know, is also going to make that question a little bit more difficult of what can I afford a year from now if I don’t know what interest rates are going to look like.

On the seller side, you know, selling now is maybe beneficial because, if these people are going to be turning into buyers, they’re going to be facing a lot of the same challenges that buyers are. They could certainly also wait for prices to continue to increase and get more money for their home. So there’s a lot of, you know, personal factors that are going to play into this aside from these, kind of, market fundamentals that, you know, “Here’s some of the things that we’re looking at in terms of, you know, what should people do or what should you be thinking about at least.”

Elissa Branch: Well, thank you so much, Nicole, for taking the time to come on the show and go over some of those numbers for us. Listeners, if you’re interested in seeing the full report and the other great info that Zillow puts out, we’ve linked to the report with this episode on the HousingWire podcast article page, so be sure to check that out.

Nicole, it has been a pleasure talking with you.

Nicole Bachaud: Thank you so much, Elissa. This has been great.

Elissa Branch: Yeah, of course. And as always, thanks for listening. If you enjoyed our show, please feel free to leave us a rating or review on iTunes, Spotify, or wherever you listen. Be sure to join us back here tomorrow for more “HousingWire Daily.”