Veros Projects 2.2% Home Value Appreciation

(Illustration courtesy of Veros Real Estate Solutions)

Veros Real Estate Solutions, Santa Ana, Calif., projects home values will appreciate 2.2% over the next 12 months.

The firm’s third-quarter 2023 VeroFORECAST said one issue reigns supreme in the current housing market: the scarcity of available homes for sale. “Forecasts suggest that this predicament is here to stay for the foreseeable future, stretching into months, and quite possibly, a couple of years,” said Reena Agrawal, research economist at Veros Real Estate Solutions.

Agrawal noted the chief culprit behind this housing conundrum is the expectation of prolonged high mortgage rates. “This is because the Federal Reserve is likely to hold interest rates higher for longer to combat inflation and will probably increase rates further,” she said. “Adding to this supply squeeze is the high cost of construction, which places a substantial damper on the prospect of new housing stock entering the market.”

But demand for housing exhibits a “surprising tenacity” despite the headwinds created by elevated interest rates, Agrawal said. “A noteworthy trend is that a full third of all home purchases transpire through all-cash transactions, underscoring the persistence of home-buying activity. Furthermore, millennials are making their mark on the housing landscape. These young buyers are not going it alone; many receive substantial financial backing from their affluent baby boomer parents. This dynamic brings an interesting twist to the market, wherein high-interest rates predominantly affect a subset of potential buyers, some of whom are exploring more cost-effective avenues, while others contemplate deferring homeownership for another time.”

The report noted smaller cities are emerging as havens of affordability and tranquility. Nine of the ten strongest-performing markets had median sale prices for existing homes under the $350,000 mark–well below the national median. Rochester, N.Y. topped the list of best performers and other metros expected to do well are in Ohio, North Carolina, Kansas and New Hampshire. Each of these metros is projected to appreciate in the 5% to 6.5% range.

“The appeal of a more balanced lifestyle is steering individuals and families toward these urban enclaves,” the report said. “The surge in remote work has provided some people the liberty to choose their place of residence based on personal preference rather than proximity to a workplace.”