Experts think surging mortgage rates and a slowing economy won’t rein in record home prices.

A new report from real-estate marketplace Zillow predicts home values will rise 6.5% from July 2023 through July 2024—and most of the gains will occur before the end of this year.

The report comes on the heels of Zillow’s recent prediction that home values would appreciate by 5.5% by the end of 2023. The revision signals a strengthening of home prices while inventory remains low.

“Housing prices will keep edging up through next summer and most likely beyond that,” said Suzanne Miller, CEO of Empire State Properties. “Prices can go down, but it could take years to reverse course.”

Zillow’s prediction of a 6.5% rise in home prices could still be lower than in some of the nation’s hottest real estate markets—where the company predicts 7% or greater increases over the next 12 months.

Of the nation’s 400 largest housing markets, Zillow is expecting a 7% increase in 120 markets. They spread across the country and include cities like Santa Maria, CA, Tampa, FL, Indianapolis, IN, and Scranton, PA.

Home sales on the decline

All this comes as existing home sales continue to fall.

According to the National Association of Realtors, existing home sales fell 2.2% in July and were down 16.6% from one year ago. That would typically hint at a housing recession, but this isn’t a typical housing market.

Experts continue to warn buyers that the prices will remain elevated until there’s more housing inventory,

“For people who are on the sidelines, there’s nothing in the data yet that suggests home prices are falling further,” said Mike Simonsen, president of Altos Research.

Economists have warned of a looming recession in real estate as rates increase and the market remains volatile. But now those fears are subsiding as demand remains at peak levels.

“At least in terms of prices, it looks like the housing recession is already over,” said Lawrence Yun, chief economist at the National Association of Realtors.

A seller’s market

The Fed's policy continues to push mortgage rates higher in an effort to stabilize the housing market. Today's rates hover near 8%—a stark contrast to sub-3% at the start of 2022.

That leap has put the housing market in a strange equilibrium.

In a rising rate environment, buyers have been reluctant to sell their houses and take on a higher mortgage rate.

“Many existing homeowners find it difficult to give up a mortgage under 4% to trade for one over 6%,” said Len Kiefer, deputy chief economist at Freddie Mac.

This has caused a drastic reduction in the number of houses for sale. Zillow saw a 2.4% month-over-month increase in new home listings in July. But compared to last year’s levels, listings are down 28%.

“Limited for-sale inventory continues to push home prices upward even as mortgage rates remain elevated,” Zillow’s economists wrote.

When inventories are this low, any homes that are on the market are bid up fiercely by buyers. According to Zillow, homes sold at a much faster rate in July than before Covid.

New home construction isn’t coming to the rescue, either. A shortage of materials and labor has pushed single-family housing starts to their lowest levels in two years.

Strangely, housing remains a seller’s market despite mortgage rates being at 22-year highs.