SEATTLE—Bidding wars are helping drive up home values in the nation's hottest housing markets, even as home values level off far below the record levels set during the real estate bubble in quieter markets. That is according to the May Zillow Real Estate Market Report.
May's report shows local markets diverging, with some chugging along, some stalled out and some continuing to accelerate amid rising prices and competition. "What we're seeing is the passing of the baton—as mortgage rates begin to rise and incomes and household formation rates increase—from a stimulus-driven housing market to one driven by fundamentals," said Zillow Chief Economist Dr. Stan Humphries. "This transition from housing recovery to a more normal market is a good thing in the long-term, but we can expect some bumps along the way. In the end, increasing household formation and stronger income growth should be able to overcome the headwind of rising mortgage rates and return markets to health."
US home values grew at an annual rate of 3% in May, to a Zillow Home Value Index of $179,200. National home values were still nearly 9% below the housing-bubble peak of $196,400, a record set in April 2007, before the housing bust drove the country into a prolonged recession.
Denver home values grew 14.7% year-over-year in May, to a median just under $300,000. Home values have never been as high there, the report says.
San Jose metro home values topped out at $883,200, higher even than San Francisco's median of $746,600. Both Bay Area markets saw double-digit growth driven by low interest rates, low inventory, and high job growth.
Florida markets in Tampa, Miami-Fort Lauderdale and Orlando remained more than 30% under their peak. While home values continued to grow there, they have been growing more slowly each month since last summer, the report says. In all three markets, home values are growing at around half the pace they were a year ago.
Las Vegas home values slowed to a year-over-year growth rate of just 6.3%, and remained 38.6% below the peak set in 2006.
Rents continued to outpace home values in 20 of the 35 largest metro areas. The Zillow Rent Index rose 4.3% year-over-year, to $1,367.
Some markets are seeing rapidly rising rents even as home values appreciate more slowly. Kansas City median home values were essentially flat, rising two-tenths of a percent in the past year. But rents were up more than 10%.
Over the next year, home value growth is expected to slow even further, to 2.2% annually, according to the Zillow Home Value Forecast. In 2014, home values rose 4.9%.
“The May result for home sales may in fact point to an underlying strength in the economy, as the National Association of Home Builders expects the strong conditions currently to continue for the next 6 months,” says insight from analyst Cowen and Co. “However, we expect the rise in rates to be a headwind for home buying and for that to start showing up in home sales data in the September-October data.”
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
