Market Update August 28th, 2023

In February, Zillow's housing economists predicted a modest 0.5% rise in nationwide U.S. home prices over the forthcoming year. Surpassing expectations, these nationwide prices not only escalated but also reached an unprecedented high. The primary driver behind this was a notably tight housing inventory which effectively counteracted the challenges presented by fluctuating mortgage rates. Amidst these market dynamics, Zillow Home Loans has now just introduced an enticing option for buyers struggling with affordability: a mere 1% down payment.

This unexpected surge prompted Zillow to continually readjust its forecast for nationwide prices. As of now, they project a 6.5% increase in nationwide U.S. home prices from July 2023 to July 2024, a slight but significant rise from their 6.3% estimate just a month prior. It's worth noting that this is higher than the historical annual average increase of 5.5% for nationwide prices since 1975.

Through Zillow's innovative program, eligible buyers can pay as little as 1% toward a down payment. To sweeten the deal, Zillow Home Loans contributes an extra 2%, elevating the total down payment to the conventional 3% minimum. Buyers also have the option to put down 3% themselves, with Zillow's 2% addition boosting the total down payment to 5%. This additional 2% isn't handed to the borrower but is channeled through closing costs. Currently, this program is exclusive to buyers in Arizona, but Zillow has aspirations for a broader reach.

The dynamics of the nationwide housing market, however, are not universally interpreted in the same way in each region. While Zillow, CoreLogic, and the AEI Housing Center express optimism about the upward trajectory, others offer a more conservative viewpoint. Firms like Moody's Analytics and Morgan Stanley anticipate potential dips in nationwide U.S. home prices by the close of 2024. In this landscape of predictions and shifts, Zillow's strategic initiatives like the new down payment program could potentially reshape the market narrative.

However, with Zillow trying to stirrup incentives to buying, do not take this as a sure guarantee our market here in AZ will boom again. This is the same company that started home-flipping here, and ended up with a $880M loss in one year! Even with this low-cost incentive to buy, it will still be hard for buyers to get over the payment increase from current rates, especially only buying with 1% down making their payment extremely high compared to relative income!

"Better a witty fool than a foolish wit.”
-William Shakespeare