Zillow is changing its 2024 housing cost forecast again. Here's why.

Following the announcement in February that U.S. home prices had bottomed out, Zillow economists continued to raise home price forecasts each month through August. At the time, Zillow predicted U.S. home prices would rise 6.5% over the next 12 months, slightly higher than the average annual growth in home prices nationwide, as tracked by Case-Shiller, since 1975.

Last week, however, Zillow economists presented a downgraded forecast and said U.S. home prices would instead rise 4.9 percent from August 2023 through August 2024. "Zillow's forecast for typical home values in the nation was downgraded this month due to expectations of higher mortgage rates and a slight reduction in market tightness," economists wrote in Zillow.

In other words, Zillow economists conclude that a robust labor market is unlikely to lead to a longer-than-expected period of higher interest rates. And a sharp strengthening in rates - the average 30-year fixed mortgage interest rate hit 7.30 percent on Tuesday - took some of the pressure off the U.S. housing market in 2023.

"August saw an unexpected increase in the number of new foreclosure listings coming on the market.

While Zillow economists expect the nation's home prices to rise 4.9 percent over the next 12 months, their forecasts show that 39 of the nation's 400 largest housing markets will see growth of 7 percent or more over the next 12 months (last month there were 120 markets).

While Zillow believes U.S. home prices have bottomed out - as do economists at CoreLogic and AEI Housing Center - not all firms agree. Firms such as Morgan Stanley and Moody's Analytics believe U.S. home prices should give way a bit more before the end of 2024.

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