Earlier this month Zillow and Pulsenomics released their 4th quarter 2017 Home Price Expectations Survey of over 100 real estate experts. Their home price appreciation forecast, which just got extended out to 2022, shows additional optimism from the last release. In fact, each of the two previous forecasts has also been more optimistic than the one before.
Their improved outlook starts with 2017. Last quarter they were predicting a 5.1% gain but now they are expecting a 5.6% gain for this year. And their prediction through 2021, which you can see in the graph below, has gone from a cumulative 18.4% to 19.8%. The prediction through 2022 is a cumulative 23.4%, which corresponds to an average compound rate of just under 3.2% per year over the next 5 years. But as Pulsenomics founder Terry Loebs explained, “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.”
Zillow senior economist Aaron Terrazas explained some of the factors driving home price appreciation:
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. 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.