While this might seem alarming, experts emphasize that these are paper losses, meaning homeowners have not necessarily lost money unless they sell their homes at a loss. As home values stabilize after a period of dramatic growth, the situation is more about normalization than an impending crash.
Widespread Losses in the West and South
Data from Zillow reveals that over 53% of U.S. homes have lost value in the past year, the highest share since 2012. The sharpest declines have been observed in the West and South, where cities like Denver (91%), Austin (89%), Sacramento (88%), Phoenix (87%), and Dallas (87%) have seen the majority of homes lose value. According to Zillow, these regions are experiencing the deepest losses, with nearly 49 out of 64 major metros seeing substantial declines.
The reasons for this regional disparity can be traced back to factors like local economic conditions, housing supply constraints, and shifting demand. For instance, cities like Austin and Phoenix saw home prices soar during the pandemic as people flocked to these areas for affordable living and remote work opportunities.
Now, as interest rates rise and demand cools, these same areas are seeing a reversal, with home prices falling sharply. The trend is less severe in the Northeast and Midwest, where only a few cities, including Minneapolis and Des Moines, have seen home values drop significantly. While the declines are most pronounced in certain markets, they do signal a broader trend toward a more balanced housing market after years of unsustainable price growth.
Homeowners Still Have Equity, Despite Paper Losses
Despite the widespread drop in home values, most homeowners are not in a dire situation. According to Zillow, the average drawdown for homes across the nation is 9.1%, meaning homes have lost about 9% from their peak valuations. However, the data suggests that many homeowners still have substantial equity. For homes with sales records, the median home value has increased by 67% since the last sale. Even with the recent declines, this means that most owners are sitting on significant gains from the housing boom that occurred in the last few years.
In addition, fewer homeowners are actually selling at a loss. The research shows that only 4.1% of homes have dropped in value compared to their last sale price, and only 3.4% of new listings are priced below their previous sale price. This suggests that homeowners, especially those who purchased homes at lower prices in recent years, are holding on to their properties, rather than selling in a weaker market. This trend is helping to keep supply tight and avoid a flood of distressed sales.
While home values have flattened and some markets are cooling, experts argue that the housing market is simply returning to a more sustainable level after the pandemic-driven price surge. Zillow’s senior economist, Treh Manhertz, stated that the current situation is not indicative of a housing crash but rather a “normalization” of home values. In the coming months, as supply issues persist and demand gradually rebounds, the housing market may find its balance, offering both buyers and sellers a chance to adjust to a new market reality.
