Analysts See Stronger Home Price Growth in 2018
Zillow Inc., and Pulsenomics LLC, Seattle, reported housing analysts have increased their expectations for home price appreciation next year, as rising prices show no signs of slowing.
The fourth quarter Zillow Home Price Expectations Survey of 100 housing analysts, market strategists and economists see home prices rising by 4.1 percent in 2018. From a year ago, they predicted home prices would grow by 3 percent in 2018.
The survey cited lack of inventory as the driving factor, combined with a strong labor market and the entry of the Millennial generation into the home marketplace. “The United States is in the middle of a supply crisis,” the report said.
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,” panelists said. 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.
“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 report said 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.
“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,” said Pulsenomics founder Terry Loebs.
Despite the positive overall outlook concerning home values in the near-to-intermediate term, disparate views persist within the panel. The most optimistic group of experts projects average annual home value appreciation of nearly 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.
