Zillow predicts housing price contraction for 2025

[SC Maintenance]

The problem with housing data is its either ridiculously lagged and incomplete (Case Schiller) or its controlled by people with vested interest in the housing market going up (NAR, Zillow, Redfin).

Still, I'll share another zillow article - since several have been published on this forum in the past. Pertinent parts:

"Zillow’s latest forecast indicates an increase in existing home sales and a decline in home values in 2025. "

"Home values are projected to fall by 1.4% this year.....The combination of rising inventory due in part to soft sales volume so far this spring could continue to put downward pressure on home values. "

Of course, this is only a projection, and all housing markets are local, so enjoy.

https://www.zillow.com/research/home-value-sales-forecast-33822/

 

[GlenPratov]

When a $450K house that used to be $200K just a few years ago becomes a theoretical 1.4% cheaper, it's meaningless. Price increases have outpaced inflation and income has not kept up. People who rent will keep renting, and no, they probably don't like it.

 

[JeffKeryk]

Hafta agree, at least around here in the short term. Too much uncertainty. Prices are basically holding. Still crazy high.
Prospective buyers I talk to, who are currently renting, want to buy but the down payment is a tough nut to crack.

 

[SC Maintenance]

When a $450K house that used to be $200K just a few years ago becomes a theoretical 1.4% cheaper, it's meaningless. Price increases have outpaced inflation and income has not kept up. People who rent will keep renting, and no, they probably don't like it.

I agree, but you also need to look at it completely - 1.4% decline + 3% inflation / wage increase (rough average of consensus estimates) looks more like a 4.4% real decline. Again, not a lot comparatively, but still meaningful economically.

 

[demarpaint]

Not much of a surprise to me. The prices rose to high too fast imo and prices going down makes perfect sense.

 

[We're Metals]

Redfin is now saying the same thing.

 

[gfh77665]

When a $450K house that used to be $200K just a few years ago becomes a theoretical 1.4% cheaper, it's meaningless. Price increases have outpaced inflation and income has not kept up. People who rent will keep renting, and no, they probably don't like it.

Exactly. Outlets like Zillow etc. love salacious, click bait headlines. Ask anyone if they would buy a stock, see it more than double, then have it "decline" by 1.4%!

1.4% is nothing! Especially if that's mostly concentrated in overpriced markets to begin with.

 

[wavinwayne]

Hafta agree, at least around here in the short term. Too much uncertainty. Prices are basically holding. Still crazy high.
Prospective buyers I talk to, who are currently renting, want to buy but the down payment is a tough nut to crack.

I don't understand how people in your area of CA afford houses, period. I googled the average home price for Los Gatos, CA and it's over $2M. How do people do it?

 

[PandaBear]

A few major reasons I can think of:

1. The free money era is over, and interest rates while likely go down a bit due to economy cooling it will not be back to 0 for a LONG time.

2. Foreign sovereign funds are holding up cash just in case they need that if any recession hit, instead of trying to reinvest back in the US to avoid exchange rate making their exports too expensive (Saudi, Singapore, Norway, etc through BlackRock).

3. Demand is not catching up due to home price being too high and out of reach for many residents, the rent is not following mortgage payment and therefore return on rent is too low (you are likely not going to even get the 4.3% T bill risk free return while landlording with the landlord risk).

4. New supply is finally starting to show up after the delay, and the price we had before were from the low supply work from home high demand days. The new supply is going to sell for way less and drive the prices down in far from job hub area.

 

[PandaBear]

I don't understand how people in your area of CA afford houses, period. I googled the average home price for Los Gatos, CA and it's over $2M. How do people do it?

2M is very competitive already, many middle class area is 3M+.

The reason is the believe that high quality places don't drop much. We don't have too much land here so someone has to live and the value is mostly in the land. Regulation and the bay and mountains limit how much you can reasonably build within commute distance. The burnt out shack that sold for $1m is likely for teardown to build 3 more $2M house. That $1M is the land and construction cost is meh. This is why earthquake insurance is no longer a big deal to many, because the land is the value and building cost is just material and labor cost. People likely don't plan to live here till death and will move out when retire, unless they bought early and just pass the house down to the children as inheritance. They will get their 2M or 3M back eventually, instead of getting depreciated like a used car.

You can rent but the equivalent house is likely still 5k a month.

This is why pay is so high here. We have problem hiring new grad at $120k a year because that's barely living wage for them.

 

[BISCUT]

I can't speak to the national outlook but I have been looking in the Lakewood Ranch, FL area for about a year and a half. My better half wants to buy us a home there. The plan is she sells her home and moves in with me and my kids. We go back and forth as we wait until my kids (13, 17, 19) figure out their lives. Likely to remain with both residents as we are lucky to be able to swing it. Personally, I enjoy FL a lot, but I don't like flat and FL is FLAT! I can do without July and August in FL as well. I love the mountains where we are in NY and easy access for me (near 84/Taconic and 87) to New England but could do without November, December, January, and February!!

I noticed a glut of inventory last year and there are many more units coming to market as new construction. Oversaturated is an understatement. 500k didn't get you a lot last year. Now the exodus of around 100k out of FL post-VID has us finding much more home for 500k. It was worth the battles we had when I told her to wait. You can "feel" the uneasiness of sellers who you know paid too much and are now seeing prices drop.

 

[Vil_Riker]

3. Demand is not catching up due to home price being too high and out of reach for many residents, the rent is not following mortgage payment and therefore return on rent is too low (you are likely not going to even get the 4.3% T bill risk free return while landlording with the landlord risk).

Very true about the lower than risk-free return on t-bills. The only winner in my area is the local government with their property taxes.

If your property is financed then you might even be in the red some years.

 

[SC Maintenance]

I can't speak to the national outlook but I have been looking in the Lakewood Ranch, FL area for about a year and a half. My better half wants to buy us a home there. The plan is she sells her home and moves in with me and my kids. We go back and forth as we wait until my kids (13, 17, 19) figure out their lives. Likely to remain with both residents as we are lucky to be able to swing it. Personally, I enjoy FL a lot, but I don't like flat and FL is FLAT! I can do without July and August in FL as well. I love the mountains where we are in NY and easy access for me (near 84/Taconic and 87) to New England but could do without November, December, January, and February!!

I noticed a glut of inventory last year and there are many more units coming to market as new construction. Oversaturated is an understatement. 500k didn't get you a lot last year. Now the exodus of around 100k out of FL post-VID has us finding much more home for 500k. It was worth the battles we had when I told her to wait. You can "feel" the uneasiness of sellers who you know paid too much and are now seeing prices drop.

If you haven't already, I would spring the (I think) $40 for a month of reventure app, and look at that area before deciding what / when to do.

 

[Dave Hess]

Florida is in shambles.

No way I would buy anything in Florida….. only rent.

 

[SC Maintenance]

2M is very competitive already, many middle class area is 3M+.

The reason is the believe that high quality places don't drop much. We don't have too much land here so someone has to live and the value is mostly in the land. Regulation and the bay and mountains limit how much you can reasonably build within commute distance. The burnt out shack that sold for $1m is likely for teardown to build 3 more $2M house. That $1M is the land and construction cost is meh. This is why earthquake insurance is no longer a big deal to many, because the land is the value and building cost is just material and labor cost. People likely don't plan to live here till death and will move out when retire, unless they bought early and just pass the house down to the children as inheritance. They will get their 2M or 3M back eventually, instead of getting depreciated like a used car.

You can rent but the equivalent house is likely still 5k a month.

This is why pay is so high here. We have problem hiring new grad at $120k a year because that's barely living wage for them.

Can you walk me through the math out of curiosity?

To buy a $2M place, by traditional measurements, I would need $400K down, making the payment $12K per month. Using the more liberal 43% home debt - I need a household income of $334K. Thats above the 95th percentile of households.

So is $334K a typical earnings in that area? Or do they allow for more than 43%? Where do these people come up with the $400K for down payment?

 

[BMWTurboDzl]

I don't understand how people in your area of CA afford houses, period. I googled the average home price for Los Gatos, CA and it's over $2M. How do people do it?

1. Multigenerational households who are pooling their incomes.

2. Stock options (aka RSU).

3. Crypto, Tesla stock, etc.

4. Gifts from relatives.

5. Equity from sale of REO.

 

[PandaBear]

Can you walk me through the math out of curiosity?

To buy a $2M place, by traditional measurements, I would need $400K down, making the payment $12K per month. Using the more liberal 43% home debt - I need a household income of $334K. Thats above the 95th percentile of households.

So is $334K a typical earnings in that area? Or do they allow for more than 43%? Where do these people come up with the $400K for down payment?

I can't say $334k is typical but I can say I have more than that in household income by quite a bit. Just as a reference and a joke if you are in Palo Alto the qualifying line of affordable housing program for a family of 4 is $200k in total family income.

Most of the people with 2M home purchase either roll in their gain from previous home (they are not first time buyer and had some home appreciation from a prior cheaper smaller home or condo, for example), or they sold other investment to get a down payment for that 2M home. Yes, Bay Area is not an average income US metro. It is near the top of US if not already the top. You can't use average US household income to value NYC real estate price for the same reason. There are a lot of choices for people who can't afford the perfect home: you can get a condo or townhouse in good school district, or commute from far away, or just don't go to a good school district and send the kids to a private school (private schools here aren't automatically better than public schools mind you), or just rent for a few years during the school district need.

Another couple of things are: we have prop 13 so it limits property tax increase over time regardless of home appreciation. So this is why many old people refuse to sell and leave to somewhere just slightly cheaper, because they would lose that property tax discount. There are also cheaper places to live if you don't mind commuting, like Livermore and Gilroy, but you are paying for it in commute stress.

$400k for down pay is really not a lot if you work for a company that has a lot of stock, and people switch jobs a lot for these up side. Managing your own investment in the stock market is also as important as your work performance and spending habits.

 

[BISCUT]

Florida is in shambles.

No way I would buy anything in Florida….. only rent.

Please elaborate. I'm mid-50's and love to travel. Recently returned from a few weeks in Italy and a few days in Palma de Mallorca. Love the many Florida airports (NOT MIAMI!!). SO much easier than JFK. LGA, or Newark. We've been to FL 8 times for home searches. Spent the first 6-8 months figuring out what we didn't want! That helped a lot. It may be that FL is in "shambles," but what we've seen and experienced wouldn't be a term we'd use.

Quite possibly coming from a state (NY) so much farther from lucidity, we are blinded to the scourge you recognize or experience daily. Appreciate the reply.

 

[SC Maintenance]

I can't say $334k is typical but I can say I have more than that in household income by quite a bit. Just as a reference and a joke if you are in Palo Alto the qualifying line of affordable housing program for a family of 4 is $200k in total family income.

Most of the people with 2M home purchase either roll in their gain from previous home (they are not first time buyer and had some home appreciation from a prior cheaper smaller home or condo, for example), or they sold other investment to get a down payment for that 2M home. Yes, Bay Area is not an average income US metro. It is near the top of US if not already the top. You can't use average US household income to value NYC real estate price for the same reason. There are a lot of choices for people who can't afford the perfect home: you can get a condo or townhouse in good school district, or commute from far away, or just don't go to a good school district and send the kids to a private school (private schools here aren't automatically better than public schools mind you), or just rent for a few years during the school district need.

Another couple of things are: we have prop 13 so it limits property tax increase over time regardless of home appreciation. So this is why many old people refuse to sell and leave to somewhere just slightly cheaper, because they would lose that property tax discount. There are also cheaper places to live if you don't mind commuting, like Livermore and Gilroy, but you are paying for it in commute stress.

$400k for down pay is really not a lot if you work for a company that has a lot of stock, and people switch jobs a lot for these up side. Managing your own investment in the stock market is also as important as your work performance and spending habits.

Thank you for your answer, its what I expected. Please don't take this negatively, but its a beggar thy neighbor area for the top 5% - those with roll over or bring in equity from elsewhere, very high paying jobs and stock options that paid out. Its not really even applicable to any real estate discussion. Its like real estate in Monaco, or the Hamptons.

Interestingly you brought up NYC - because if you do the math the NYC condo market has not even kept up with inflation over the last 20 years. NYC is done long term - the reason being the banks have been leaving - for longer than 20 years actually. It started when BoA moved their corporate headquarters to Charlotte and soon became the largest consumer bank, and ramped up during the pandemic when the hedge funds all moved to TX and FL (no state income tax). Even the stock market people figured out they don't need to be in NYC to trade stocks.

 

[JeffKeryk]

I don't understand how people in your area of CA afford houses, period. I googled the average home price for Los Gatos, CA and it's over $2M. How do people do it?

At $2M you are including condos. I live in the poor part of LG; there are probably no $2M houses on my block. The rich people live up the hill; I am not allowed there.

Full disclosure, I did not pay anywhere near that much back in '94 I think. Sometimes you get lucky, as they say. I bought the worst house in LG. It's a nice place to live. @slo town was brought up here; he has many fond memories including the dairy business with cows down the street.

2 key reasons Los Gatos is high; we are located at the edge of Silicon Valley at the edge of the Santa Cruz Mountains. A refuge of the snarling Valley that chews up people and spits out money. 2nd, the schools. The school down the street is rated, "A California Distinguished School". That's off the charts.

Now if you want to talk expensive, per square foot, you gotta go to Palo Alto. A friend bought a broken down place there back in the early 2000's. Her neighbors were "2 Steves", Steve Young and Steve Jobs.

One one hand it is nice to have the equity. On the other hand my neighbors almost all say their children will never be able to live here.