After two years of double digit growth, home values in the United States are falling.
Much of that decline is attributable to a steep rise in mortgage rates, which have more than doubled over the past year. As borrowing costs rose, many potential homebuyers stepped away from the market. As demand eased up, home prices (and their estimated values) began to fall.
Here are the cities where home values fell the most from November to December, according to new data from Zillow. The data is based on Zillow's Home Value Index, which uses the company's data to measure how much a typical home is worth.
- Seattle, Washington: -4.81%
- Dallas, Texas: -1.47%
- San Antonio, Texas: -1.33%
- San Diego, California: -1.33%
- Austin, Texas: -1.30%
- Salt Lake City, Utah: -1.29%
- Phoenix, Arizona: -1.20%
Across the entire country, the value of a typical home fell 0.2% between November and December, according to Zillow. On an annual basis, home values are still up 8.4%.
As always, it’s worth remembering that real estate trends can vary widely at the local level. Home values in Milwaukee, Wisconsin, actually rose 1.1% over the same time period, according to Zillow, while values in Birmingham, Alabama rose 1%.
What happens when home values drop?
Falling home values are scary, but “that doesn’t necessarily mean doom and gloom,” Douglas Elliman real estate broker Jessica Peters recently told Money.
There are some real risks, of course: Some sellers could end up taking a loss, depending on when they purchased their home, and home equity borrowers might not be able to borrow as much. Recent buyers should also be wary of going underwater on their mortgage.
The upside for potential buyers is that falling home values means lower prices — assuming they can afford to buy at today's rates.
But the decrease in home prices may be a short-lived trend. Many experts believe mortgage rates will come down this year, and it’s possible that the housing market will get a little more competitive if that happens.
"I expect new listings to remain scarce as homeowners hold onto low interest rates while the pool of determined buyers circle the few homes that are available,” Seattle Redfin agent Shoshana Godwin said in a recent news release.