Zillow Home Value Index Hits Lowest Real Levels Since 2021: What Investors Need to Know

The U.S. housing market is at a crossroads. According to Zillow’s latest data, real home values (adjusted for inflation) have fallen to their lowest point since May 2021, signaling a dramatic shift in affordability and investor sentiment. While nominal prices remain elevated, the erosion of purchasing power has reshaped the landscape for buyers, sellers, and investors alike.

Key Trends: A Disconnect Between Nominal and Real Values

The Zillow Home Value Index (ZHVI) measures the “typical home value” for middle-tier properties (35th–65th percentile). As of March 2023, the nominal ZHVI stood at $361,263, a 2.06% year-over-year increase. However, when adjusted for inflation, real values had declined for 11 straight months, hitting a multi-year low. By April 2024, the nominal ZHVI had slipped to $358,734 (a 4.3% annual rise), but inflation-adjusted metrics revealed a stark reality: real values had fallen 2.23% year-over-year by early 2023.

The divergence between nominal and real figures is critical for investors. While sellers may still see dollar gains, buyers face a 35.3% of income needed to cover mortgage payments—exceeding the 30% affordability threshold. This imbalance underscores why the Federal Reserve’s inflation battle continues to reverberate through housing markets.

Drivers of the Decline: Rates, Inventory, and Inflation

1. Mortgage Rates:
   Elevated borrowing costs have been a primary headwind. Mortgage rates averaged 6.65% in March 2025, down slightly from 2023 peaks but still historically high. This has constrained affordability, with first-time buyers sidelined by $72,000 median down payment requirements.

2. Inventory Surge:
   For-sale inventory rose 19% year-over-year in March 2025, reaching 1.15 million homes—the highest since 2020. While this eases seller dominance, mismatches between listings and sales persist. A record 23.5% of listings required price cuts in March 2025, signaling buyer resistance.

3. Inflation and Policy:
   Persistent inflation—driven by tariffs, immigration bottlenecks, and construction costs—has outpaced nominal price growth. The Consumer Price Index (CPI) for shelter rose 8.1% annually in March 2025, further squeezing real home values.

Regional Variations: Winners and Losers in the Market

The decline isn’t uniform. Coastal and previously overheated markets like Miami (-1.5% YoY) and Phoenix (-2.5% YoY) have seen sharper corrections, while Midwestern cities like Cleveland (+3.1% YoY) remain more affordable.

Outlook: Stability or Further Declines?

Zillow forecasts 1.8% national home value growth in 2024, down from earlier estimates. A rebound hinges on two factors:
- Mortgage Rate Relief: If rates dip below 6%, buyer demand could revive.
- Inventory Balance: A 24% gap between current and pre-pandemic inventory levels suggests further price softening unless supply normalizes.

What Investors Should Watch

• Price-to-Rent Ratios: In markets where renting is cheaper than owning, like San Francisco, values may face prolonged headwinds.
• Equity Markets: Homebuilder stocks (e.g., KBH, DHI) often mirror ZHVI trends. A **visual>KB Home (KBH) stock performance vs. ZHVI since 2021 could highlight correlations.
• Rent Growth: Slowing rent increases—up 5.2% YoY in Q1 2025 vs. 11% in 2021—may signal oversupply in rental markets, further pressuring home values.

Conclusion: Navigating the New Realities

The ZHVI’s real decline since May 2021 marks a pivotal moment. For buyers, this could be a window to negotiate prices in overheated markets. For sellers, patience may be required to avoid forced sales. Investors in housing stocks or real estate funds must weigh risks: while affordability challenges persist, a stabilization in rates or inventory could spark a rebound.

The data is clear: real home values are now at their lowest since the pandemic’s early peak, and the path forward depends on whether inflation eases and demand recovers. For now, the market’s “new normal” favors caution—and a sharp eye on both nominal and inflation-adjusted metrics.