A panel of 110 housing economists has raised its forecast slightly for home price increases in 2014. The experts expect price increases to slow in 2015 and return to normal levels of appreciation by 2018.
The latest quarterly Zillow Home Price Expectations Survey of economists and housing experts raised its forecast for price increases this year from 4.3 to 4.5 percent. The experts expect appreciation to slow to roughly 3.8 percent in 2015 and 3.3 percent by 2018, rates much more in line with historic norms.
In Novmber the panel also predicted that 2014 prices would slow to roughly 4.3 percent, on average, and eventually fall to 3.4 percent by 2018. Now it has raised those forecasts slightly.
Based on current expectations for home value appreciation during the next five years, panelists predicted that overall U.S. home values could exceed their April 2007 peak by the first quarter of 2018, and may cross the $200,000 threshold by the third quarter of 2018. The survey of economists, real estate experts and investment and market strategists was sponsored by Zillow, Inc. and is conducted quarterly by Pulsenomics LLC.
Panelists were also asked when the Federal Reserve should end its ongoing stimulus efforts, known as “quantitative easing.” Since September 2012, the Fed has been purchasing tens of billions of dollars worth of Treasury bonds and mortgage securities each month, which has helped keep mortgage interest rates low and stimulate demand. The program is now being wound down.
“Mortgage rates have been riding a rally in U.S. Treasury securities caused by volatility in emerging markets in recent weeks, so the impact of Fed tapering on the housing market has been minimal thus far,” said Pulsenomics Founder, Terry Loebs. “More than 70 percent of the experts want to see the monetary stimulus reduced to zero before the end of this year, and the current pace of tapering will get us there. Of course, whether Janet Yellen’s Fed will maintain the current pace as new economic challenges arise remains an open question.”
Panelists were asked to assess the impact to the market if these institutional investors were to significantly curtail their activity this year. Among those panelists expressing an opinion, 79 percent said the impact would be significant or somewhat significant.
“Real estate investors, both large and small, played a crucial role in helping to stabilize markets during the darkest days of the housing recession, but a decline in investor activity now isn’t necessarily a bad thing, and could have real benefits for buyers,” said Zillow Chief Economist Dr. Stan Humphries. “Buyers entering the market in the next few months will not be competing with cash-rich investors like they were last year which should be some small solace given the higher prices and mortgage rates that they will encounter. The gradual decline of investor activity should be viewed as another sign of the market slowly returning to normal, and I agree with the panel’s expectations that there will not be a rush for the exit by institutional investors.”.