Signals in the housing market have been pointing to a potential drop in home prices for almost a year now, and according to a new report from listings giant Zillow, it’s finally happened.
The company published data for the month of April that show the median home value has dropped compared to a month ago in each of the 35 biggest markets in the U.S., except for New York, which didn’t change at all.
This collective dip in markets across the county caused the median home value for the U.S. as a whole to drop by 0.1 percent, the first time the median home value dropped nationally in seven years.
Zillow’s median home value is its “Zestimate,” an estimation of home values in a city calculated in part based on sales in the area.
Home prices have been on the upswing since the housing market bottomed out after the financial crisis of 2008, when millions lost their homes to foreclosure and prices went into free fall, a dramatic collapse thought to be unthinkable in the usually steady housing market.
Over time, home prices recovered and eventually surpassed their pre-crisis peaks. Heading into the summer of 2018, the number of homes for sale was so low that one realtor Curbed spoke with predicted that summer would be “the most competitive housing market in recorded history.”
But the anticipated bidding wars over the few houses that were for sale never materialized. The number of homes for sale started rising as homes went unsold, particularly on the West Coast. In hot markets like San Jose, San Francisco, and Seattle, inventory has risen by triple digit percentages year-over-year for most of the last year.
Demand for housing remains strong because the economy is doing well. Supply suddenly spiking to the degree seen on the West Coast suggests that people simply can’t afford the steep asking prices anymore. The Zillow report is the first strong sign that home values are finally coming down. And given that late spring and summer are prime homebuying seasons with strong demand, a drop in value is even more significant.
But there are caveats to the report. First, as Zillow notes, month-to-month home values can be volatile; it’s possible prices will snap back up in the company’s May data like the April drop never happened. Second, the year-over-year home values—an indicator that removes the seasonality effect that can be present in the housing market—still rose, and by a health amount—6.1 percent. It will take a few months of drops before this can be considered a trend.
Still, the market has shown signs for a year now that affordability has been stretched too thin, so this could very well be the beginning of a mild correction in home prices, or at least a softening in home price appreciation.