Experts' Home Price Forecast Keeps Ratcheting Up

I actually predicted this back in October when I wrote about the 3rd quarter home price expectations survey. Last week’s 4th Quarter 2021 Home Price Expectations Survey from Zillow and Pulsenomics produced an even more bullish outlook for the nation’s home prices than that already optimistic 3rd quarter survey. They set a new record.
Since it’s January the graph below extends the forecast another year – to 2026. The forecast through 2025 is now at 38.0% cumulative appreciation, compared to 31.8% last quarter. Most of that increase came from the 2021 “forecast” which rose to 16.1% from 11.7% last quarter. The appreciation forecast in the subsequent 5 years averages out to 4.3% per year, which is above long term historic averages and also higher than current mortgage rates. In other words, your mortgage interest will be more than covered by expected appreciation on your home.

home price forecast
Home price appreciation will slow down from 2021’s torrid pace but it will still exceed historic averages

During the last 2 years home prices have done better in the suburbs than in downtown areas. 46% of the panelists believe this trend will continue while only 34% believe the downtown areas will do better. The biggest factor driving that predominant belief is the belief that there is “a more permanent and pronounced shift to working from home that loosens the connection between office location and home location.”

Chicago Area Home Price Outlook

Since we don’t have an explicit home price forecast for the Chicago area now is a good time to take a look at what the home price futures market is predicting. John Dolan, who happens to be one of the panelists contributing to the home price expectations survey and who is also the market maker for the Case Shiller home price futures, provided me with the data and graph below.
You’ll notice right away that the market expectation for the Chicago area is much more muted when compared to the forecast for the nation. From the end of 2020 to the end of 2023 the futures prices imply 18.1% appreciation or 5.7% per year. That compares to the national forecast of 28.6% appreciation over the same time period – a huge difference. This is consistent with the fact that the Chicago area lags the rest of the nation every single time that the Case Shiller indices are released (next one comes out Tuesday).

Chicago home price forecast
The outlook for Chicago area home prices is markedly less bullish than the rest of the nation

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Gary Lucido is the President of Lucid Realty, the Chicago area’s full service real estate brokerage that offers home buyer rebates and discount commissions. If you want to keep up to date on the Chicago real estate market or get an insider’s view of the seamy underbelly of the real estate industry you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.

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