The FINANCIAL -- Housing experts are increasing their expectations for home price appreciation as rising prices show no signs of slowing.
Experts expect home prices to climb 4.1 percent in 2018, according to the 2017 Q4 Zillow Home Price Expectations Surveyi, an increase in their expectations for 2018. One year ago, experts predicted home prices would grow 3 percent in 2018.
The quarterly survey, sponsored by Zillow and conducted by Pulsenomics LLC, asked more than 100 housing experts, market strategists, and economists about their expectations for the U.S. housing market in 2018 and beyond.
The United States is in the middle of a supply crisis – the number of homes for sale has fallen on an annual basis for the past 33 straight months. Although building activity picked up slightly toward the end of the year, the biggest surprise of the 2017 housing market was the slow pace of single-family home building, according to the panelists. Only 16.7 percent expect it to change in 2018, a sign that limited inventory will still be a driving force in the housing market next year.
Experts believe 2017's low mortgage rates are likely to rise next year to around 4.5 percent from the current rate of about 3.9 percent. The average 30-year fixed mortgage rate has hovered around historical lows for years, and is well below the 6 percent rates seen during the run up to the housing bubble.
"The American labor market is stronger than it's been in decades and Americans, particularly young Americans, are increasingly feeling confident enough to buy homes," said Zillow senior economist Aaron Terrazas. "Home building has not kept pace with this surge in demand and remains well below historical norms. We don't expect that these demand-supply imbalances will fundamentally shift in 2018: Demand will continue to grow and, though supply should increase somewhat, we still won't build enough new homes to meet this demand, contributing to higher prices. Higher mortgage rates will eat into buyers' budgets, putting even more price pressure on the most affordable homes for sale. Unless there is a fundamental shift in the number and type of homes for sale, this is the new normal of the American housing market."
The panelists were also asked to predict the 30-year fixed mortgage rate, the homeownership rate, unemployment rate, and real income growth rate at the end of next year.
Although unusual supply-demand dynamics will likely generate home value appreciation in the foreseeable future, most experts believe that the nation-wide rate of increase will diminish. "All but two of the 108 panelists who responded to this quarter's survey expect weaker home value growth next year relative to 2017, and panel-wide, returns are expected to average less than three percent per year after 2018," said Pulsenomics founder Terry Loebs. "In a low-inflation environment, nominal housing gains in the three- to four-percent neighborhood will still create homeowner wealth at a pace exceeding the pre-bubble norm."
Despite the positive overall outlook concerning home values in the near-to-intermediate term, disparate views persist within the panel. "Our most optimistic group of experts projects average annual home value appreciation of almost 5 percent annually through the five-year period ending in 2022, while the most pessimistic group expects an average annual rate of just 1.4 percent," Loebs said. "I don't foresee a stronger consensus emerging until we have greater clarity concerning tax reform and the pace of entry-level home building."