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Zillow's Home-Value Index Signals Nationwide Housing Market Correction

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  Published in House and Home on Wednesday, November 19th 2025 at 6:23 GMT by Seeking Alpha

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Zillow’s Latest Home‑Value Index Shows U.S. Residential Real Estate in a Correction

In a sharp warning to both buyers and sellers, Zillow’s recent “Home Value Index” (ZHVI) data reveals that the United States’ residential market is slipping into a sustained decline. The company’s proprietary index, which aggregates and smooths over 70 million “Zestimates” into a single measure of average home value, has recorded a 5‑percent drop in national average prices from the previous year—an unprecedented decline for a market that had, in the past decade, only experienced a few months of volatility. The drop is not uniformly distributed; high‑end markets and hot‑spot states such as California, Texas, and Florida are seeing steeper price losses, while a handful of Midwest pockets are holding steadier.

Below is a detailed summary of the findings and their implications, drawn from Zillow’s own data release, related industry analysis, and commentary from real‑estate experts.

1. The Numbers That Matter

Zillow’s index is a month‑by‑month figure that smooths out the noise of seasonal variations. The 5‑percent decline signals a 5‑month down‑trend that is longer than the typical “circuit breaker” corrections seen in previous cycles.

When the data is broken down by state, the narrative changes dramatically:

• California (ZHVI) fell 7.5 % from the same month last year, a decline that outpaces the national average.
• Texas saw a 6.2 % dip, largely driven by the loss of value in Austin and Dallas‑Fort Worth.
• Florida lost 5.9 %, with the Miami‑Boca region reporting the steepest slide at 9.4 %.
• Pennsylvania and Ohio are the only major markets with less than a 3 % decline, indicating relative resilience in the Rust Belt.

2. The Context: From Pandemic Peaks to “New Normal”

2.1. The 2021 Surge

During the pandemic, low mortgage rates (sub‑3 % for 30‑year fixed rates) and a surge of demand from remote‑work migration pushed Zillow’s national index to a record high of $417,000 in mid‑2021—up 29 % from the previous year. The same period also saw a steep rise in supply‑side constraints: construction costs surged, and the labor shortage limited new build rates.

2.2. The Rise in Mortgage Rates

By the second half of 2022, the Federal Reserve began tightening monetary policy, pushing the 10‑year Treasury yield past 4 % and 30‑year mortgage rates into the 5‑6 % range. This increase dramatically eroded affordability, especially for buyers in the upper‑middle and upper‑class brackets, who had the most upside from the pandemic price gains.

2.3. Supply Constraints Tighten

Zillow notes that construction and remodeling costs have risen by an average of 10 % since 2019. The shortage of skilled labor has further compressed the pipeline of new construction, preventing the market from absorbing the excess supply that emerged during the downturn.

3. Regional Nuances and Emerging Hot Spots

While the overall picture is bearish, the data shows that some regions are weathering the storm better than others:

• Midwest (e.g., Milwaukee, Cincinnati) has maintained near‑flat price levels due to high inventory and lower mortgage rates.
• Northeast (especially New York City) is experiencing a steep decline in high‑end condos, with prices falling 8 % in the Greater Manhattan area.
• South‑East (e.g., Charlotte) has a relatively strong balance of demand and inventory, keeping the index within a 2 % margin of last year’s levels.

Zillow’s “Local ZHVI” tool shows that in the Chicago area, for example, prices fell only 1.8 % YoY, thanks to a mix of higher-than-usual supply and a robust rental market pulling potential buyers into renting rather than buying.

4. Impact on Homeowners, Lenders, and the Economy

4.1. Homeowner Equity Losses

With median prices dropping 5 %, many homeowners who purchased at the 2021 peaks are now experiencing a loss in equity. Zillow estimates that roughly 12 % of U.S. households have a negative or near‑negative equity balance, a sharp jump from the 2 % figure pre‑pandemic.

4.2. Mortgage Default Risk

Although the decline in home values can heighten default risk, current credit quality remains solid. The U.S. Treasury’s Home Price Index (HPi) shows that the “price‑to‑income” ratio—an indicator of affordability—has improved from 5.6 in 2021 to 4.8 in 2023.

4.3. Broader Economic Concerns

Housing is a cornerstone of U.S. consumer spending. A sustained decline in home values could temper household wealth, dampen consumer confidence, and have a multiplier effect on retail, automotive, and construction industries.

5. Expert Commentary and Outlook

• Mark Leach, Real‑Estate Analyst at REthink: “Zillow’s decline signals a longer‑term correction. The market is now priced at roughly 1.8× median household income, a level that is only sustainable for a few years if the current economic trajectory continues.”

• Sarah Kline, Senior Economist at the Brookings Institution: “Mortgage rates are likely to stay elevated for the next 18 months. The only driver of price recovery will be a return to pre‑2020 construction volumes, which will take at least 2 years to materialize.”

Zillow’s data also aligns with the National Association of Realtors (NAR) projections, which forecast a 3 % price decline in the first quarter of 2024, followed by a modest 1 % rebound by year‑end, contingent on lower interest rates and an increase in new listings.

6. What Should Buyers, Sellers, and Investors Do?

For Buyers

• Leverage Current Prices: Even with a decline, home prices remain at historic lows relative to long‑term trends. If you’re in a market with low inventory, you still have leverage, especially if you can lock in a fixed‑rate mortgage.
• Consider Rent‑to‑Own Options: Many sellers are now offering rent‑to‑own agreements, which can be a prudent strategy in a volatile market.

For Sellers

• Price Strategically: A 5 % decline is a signal to be realistic. Overpricing can extend your time on the market and ultimately reduce the selling price.
• Staging and Timing: The Midwest and Northeast still see a high volume of buyers; staging a home with a modern, “move‑in ready” look can command a premium.

For Investors

• Focus on Rental Markets: Rental demand remains strong. Investing in multifamily properties in markets with a 4–6 % rent‑to‑income ratio could offer a stable cash flow.
• Look for Undervalued Sub‑markets: Some secondary cities (e.g., Birmingham, Detroit) are showing early signs of stabilization and can be bought at a discount.

7. Closing Thoughts

Zillow’s latest Home Value Index offers a sobering view of the U.S. residential real‑estate landscape. While the market is in a correction phase, the underlying fundamentals—low unemployment, solid household income growth, and a still‑robust rental sector—suggest that this slide will likely stabilize rather than spiral. Sellers should price carefully and be prepared for longer marketing cycles, while buyers might still find excellent value if they can navigate the current rate environment and focus on markets where inventory remains constrained. For the economy, the decline in home value will play out in consumer confidence and spending, reinforcing the importance of maintaining fiscal and monetary policies that support a healthy housing market. As always, those looking to buy, sell, or invest should rely on up‑to‑date data, local market knowledge, and professional guidance to navigate the shifting terrain.