Home values drop for second straight month, but volatile rates continue to hamper buyers

With affordability continuing to keep prospective homebuyers from entering the purchase fray, U.S. home values decreased for the second straight month, according to the latest data from Zillow.

The raw Zillow Home Value Index put the typical U.S. home at $356,054 in August, a drop of 0.3% from the preceding month. Typical home values remain up 14.1% year over year (and 43.8% since August 2019), but the latest decline is the largest monthly drop since 2011. The big slide follows a backtrack of 0.1% in July.

Only 12 of the 50 largest U.S. markets saw home values grow from July to August. Values fell the furthest in pricey areas in the West, although some relatively affordable markets in the region also saw big price declines. San Francisco saw the largest home value decrease in August at 3.4%, followed by Los Angeles (3.4%), Sacramento (3.2%) and Salt Lake City (3.2%).

Meanwhile, less expensive markets in the Midwest and South have seen significantly less cooling. Birmingham, Alabama, led the country in home value growth at 0.9% month over month, followed by Indianapolis (0.5%); Cincinnati (0.4%); and Louisville, Kentucky (0.2%). All four have a typical home value of less than $300,000.

The decreases in home values, theoretically, are good news for buyers, but affordability challenges continue to plague the buyer pool. Between still-high home prices and rising mortgage rates, the typical monthly mortgage payment on a newly purchased home, including insurance and taxes, has spiked from $897 in August 2019 to $1,643 in August 2022 — a jump of 83%.

And recent volatility in interest rates has made it even harder for some to qualify for a home purchase in the first place.

“Substantial day-to-day and week-to-week rate movements mean that many potential buyers are able to qualify for a loan one week but not the next, or vice versa,” said Skylar Olsen, Zillow’s chief economist. “Even buyers able to afford a house at current rates could feel frozen, waiting for mortgage rates to fall dramatically again, like they did from the end of June to mid-July, when rates dropped 50 basis points in just two weeks.”


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