Home prices have been among the strongest engines of the economic recovery from the short-lived COVID-19 pandemic-driven recession. Gross domestic product has risen most quarters since, although the past two quarters have been an exception. Even with the slowdown, home prices have risen nationwide, year over year, for each month in 2022.
The home price upward movement has started to change, and the housing market is becoming much more challenging. The primary conclusion of the recent Zillow Home Value and Sales Forecast: July 2022 was that “its housing market outlook has been revised down from June. Zillow forecasts 7.8% home value growth over the next 12 months (July 2022-June 2023).”
Zillow also has forecast that existing home sales this year will be 5.46 million, which is a 10.8% drop from 2021.
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Some markets already have started to experience declines in home prices. These are in cities where prices rose by well into the double-digit percentages over the past 12 months. A prime example is Boise. Prices rose by more than 30% in some months of late 2021 and early this year. Demand in the city has fallen sharply and, year over year, prices have started to fall.
Home equity has been, and will be, a reason consumers will continue to consume or draw back from their spending. Homes are often the most valuable asset American families have. A darkening real estate market will make consumers more cautious. That, by itself, will be a major cause for a deepening recession.
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