By S.E. Slack
The monthly pace of home value appreciation has slowed significantly in many metros, although home values and prices are inching up across the Midwest. Ohio seems to be part of the national slowdown trend. In Cleveland, for example, home values are down 3.4 percent year-over-year for an average home value of $50,700. In Sandusky, the median list price of $110,000 is a drop of 10.6 percent from this time last year.
While Ohio’s real estate market has had a difficult time throughout the economic slowdown, part of the national issue, according to Zillow Chief Economist Stan Humphries, is that several hot markets that were already expensive to begin with were getting too far out over their skis. This created rapid home value appreciation and rising mortgage interest rates that outpaced income growth and generated an unaffordable market situation in many areas.
“It’s good to see the pace of home value appreciation moderate,” Humphries said, “allowing the market to get back into a more sustainable balance and not topple over. Home value appreciation is better when it’s boring, and we expect to see continued moderation.”
The larger decreases (home values decreasing more than 1 percent per month) can be seen in markets that are potentially re-emerging home value bubbles. After becoming enormously affordable during the housing recession, affordability levels in markets like San Francisco, San Jose, San Diego and Los Angeles are again close to historical averages and will become less affordable with rising home values and mortgage rates. Slowing home value appreciation will help these markets stave off another housing bubble.
Svenja Gudell of Zillow adds that the 30-year fixed mortgage rate will continue increasing and reach 5 percent next year, up from roughly 4.15 percent currently. She says that’s not a bad thing.
“It is important to remember that this slowdown in home value appreciation was expected and indeed a healthy next step in the housing recovery as appreciation rates get back to a more normal, steady pace,” Gudell said.