Zillow’s second quarter Real Estate Market Reports, released today, show home values increased 2.1% from the first to the second quarter of 2012 to $149,300 (Figure 1). On an annual basis, home values rose 0.2% from June 2011 levels (Figure 2), marking the first annual increase in U.S. home values since 2007. In addition to showing both quarterly and annual appreciation, national home values also rose for the fourth consecutive month, increasing 0.7%. Notably, home value appreciation in the second quarter was the highest since the fourth quarter of 2005.
Nationally, home values reached their bottom in February of 2012 and have since appreciated at very robust monthly growth rates. Despite encouraging monthly growth, we do not believe that this monthly rate is sustainable and expect it to taper off towards the end of the year. According to the Zillow Home Value Forecast, we expect national home values to appreciate by 1.1% over the next year (June 2012 to June 2013).
The housing market’s recovery continues to show tremendous variation market by market. Sixty-seven of the 156 markets covered by the Zillow Home Value Forecast are expected to see increases in home values over the next year, with the largest increases expected in the Phoenix metro (9.9%) and theMiami metro (6.1%). We believe that ninety-six out of the 156 markets have already hit a bottom in home values, including Boston, Miami, and Phoenix. In some of the hardest hit markets, the bottoming process has been quite different than we had initially expected. Due to very low inventory levels paired with greater consumer and investor appetite and low mortgage rates, home values have appreciated faster than anticipated in markets like Phoenixand Miami, creating a V-shaped recovery in home values.
Home Values
The Zillow Real Estate Market Reports cover 167 metropolitan areas (metros) of which 98 showed quarterly home value appreciation. Five metros remained flat, while 64 metros show home value losses. Nearly one-third of metros covered by the Real Estate Market Reports posted annual increases in home values. The largest annual increase was in Phoenix, where home values rose 12.1% from the second quarter of 2011 to the second quarter of 2012. Phoenixis benefiting from high demand for homes from investors looking to convert them into rentals, high demand from mainstream buyers pulled back into the
market by historical affordability (almost 43% below the historical average) and constrained supply due to high negative equity (55.5% of Phoenixhomeowners with a mortgage were in negative equity in 2012 Q1) and natural resistance of sellers to sell at market bottom.
Overall, national home values are back to January 2004 levels, having fallen 22.9% since their peak in May of 2007.
Rents
The June Zillow Rent Index (ZRI) is up 5.2% from year-ago levels, and 68% of the 293 metropolitan areas covered by ZRI in this report experienced year-over-year gains. The rental market remains strong even as home values start to once again appreciate in many markets. Markets that saw extremely strong year-over-year rent increases include Philadelphia (11.9%), Chicago (11%),Baltimore (11%), and San Francisco (9.5%). Continually rising rents will increase consumer demand for home purchases, especially in this low mortgage rate environment.
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