On Friday Zillow and Pulsenomics came out with their Q1 2017 Home Price Expectations survey which contains the consensus home price forecast for the nation of over 100 housing experts. Overall it’s a brighter outlook than their 4th quarter outlook which was actually dialed back a bit from their 3rd quarter outlook.
In order to compare the two surveys you have to do a little bit of math since they changed the starting point to 2016 from 2015 last quarter. On an apples to apples basis last quarter they were projecting cumulative appreciation of 15.8% from 2016 to 2021 but they have since raised that home price forecast to 17.3% appreciation.
The net result of their forecast is an average annual appreciation of 3.2% but that is front loaded as you can see in the graph below. They are projecting 4.4% growth for 2017, after 6.8% appreciation in 2016, and then somewhat slower growth beyond that.
Pulsenomics founder Terry Loebs summarized their outlook this way:
Compared to their outlook in our previous survey just a few months ago, most of our panelists now expect somewhat stronger home value appreciation this year and next, as tight inventory conditions persist. However, longer-term, the consensus still calls for decelerating prices, with the most pessimistic quartile of experts continuing to project negative inflation-adjusted returns for U.S. housing beyond 2017. The specter of rising mortgage rates and other affordability hurdles are clearly impacting these home value projections.
Outlook For Chicago Area Home Prices
The only way I know how to get a glimpse of the outlook for Chicago area home prices is by looking at the futures market for the Chicago Case Shiller Home Price Index. That tells us what the “market” thinks. I get this information from John Dolan’s HomePriceFutures.com Web site.
The graph below tells us where the market thinks Chicago’s Case Shiller Home Price Index is going to be out into the future. The furthest out month for which we have pricing is November 2020 with an index value of 145.7 which corresponds to the index for September – 4 years from this index value released by the Case Shiller people. This corresponds to a miserable 1.4% annual appreciation rate. Compare that to the last release, which was up 4.0% year over year, and that’s pretty sad.
Impact Of Mortgage Rates On Home Prices
Back in December I wrote about why rising mortgage rates shouldn’t crash Chicago home prices. As part of this quarter’s home price expectations survey they asked the respondents how high mortgage rates had to go before it would impact home prices. There was quite a dispersion as you might imagine but what I thought was significant was that it looks like there was a consensus that there wouldn’t be much impact until rates hit 5.0%. Currently they are around 4.0% so we have quite a bit of room to run still.
Another interesting idea that came out of the survey is that one of the factors that prevents mortgage rates from impacting home prices is that the higher mortgage rates rise the less likely people are to sell their homes because any new mortgage they get would be so much more expensive. Thus, rising mortgage rates results in constrained inventory which then offsets the otherwise downward pressure on home prices. There is apparently some research that confirms this phenomenon which is called “mortgage rate lock-in”. The survey respondents were asked for their thoughts on whether or not this was a real thing and 56% said it already was or would have a meaningful impact on the housing market.
Gary Lucido is the President of Lucid Realty, the Chicago area’s full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate market, get an insider’s view of the seamy underbelly of the real estate industry, or you just think he’s the next Kurt Vonnegut 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.