On Friday Pulsenomics came out with the results of their quarterly survey of 101 real estate experts sponsored by Zillow. Despite what the press release says the experts are actually weighing in a bit more optimistic in their home price forecast than they did last quarter.
The press release quotes Terry Loebs, Founder of Pulsenomics, as saying that “During the past year, expectations for annual home value appreciation over the long run have remained flat, despite lower mortgage rates”. Well, that’s not quite true. If you look closely at the numbers from the previous forecast and compare them to this forecast you will see that their outlook for 2019 is slightly higher now by about 2.6%.
Their cumulative appreciation outlook works out to an average of 3.6% per year, which is about what it has been historically from 1987 – 1999 before the housing bubble. However, their forecast is front loaded with a 4.4% appreciation forecast for 2015. And according to the release “on average, panelists said they expect median U.S. home values to exceed their pre-recession peak of $196,400 by May 2017.”
Outlook For Chicago Area Home Prices
Once again I turn to the very thinly traded Case Shiller home price futures market for some insight on the future direction of Chicago home prices. It’s difficult to compare the current outlook to what it was last quarter as there was no pricing information for 2017 last time. And the pricing information that is available doesn’t correspond to nice, neat beginnings and ends of the calendar years. However, I can tell you that the market is forecasting home prices to rise by around 11.8% between October of last year and Septembr 2017 – or roughly 3.8% per year, which is pretty close to the Pulsenomics forecast discussed above.
Much Hand Wringing Over “Unaffordable” Rents
In this particular release there was a lot of complaining about rents being unaffordable for at least another two years and how this is preventing people from saving down payments to buy homes – as if home ownership is something we should all aspire to.
Personally, I find this discussion very odd. How could rents ever be unaffordable? If they were truly unaffordable then people wouldn’t be able to pay them. But they are paying them. So they must be affordable – unless you apply the standard that renters also have to be able to save for a down payment. And, as the press release points out, 35% of the survey respondents did in fact say that they did not feel like rent affordability was an issue.
The other oddity in the release is that it contains a number of often contradictory statements about what should be done about rental affordability – as if all market “problems” need to be corrected by the infinitely wise government. First, the release points out that “More than half (52 percent) of the respondents with an opinion on this issue said the market will correct the nation’s soaring rents over time, and no government intervention is required.” Bingo!
However, Zillow Chief Economist Dr. Stan Humphries is then quoted as saying “Solving the rental affordability crisis in this country will require a lot of innovative thinking and hard work…Housing markets in general and rental dynamics in particular are uniquely local and demand local, market-driven policies. Uncle Sam can certainly do a lot.”
Of course, I cringe when I read that because I immediately envision armies of politicians and bureaucrats sitting in rooms with lobbyists and developers trying to establish price controls, estimate demand, plan supply, raise taxes and spend money.
The rest of the Stan Humphries quote goes on as follows:
I worry we’ve become too accustomed to automatically seeking federal assistance for housing issues big and small, instead of trusting markets to correct themselves and without waiting to see the impact of decisions made at a local level. Broader federal efforts aimed at increasing real wages and job opportunities will go a long way toward helping renters, but real, lasting solutions to rising rents need to be found locally.
So this guy keeps waffling about whether or not the market is going to solve this so-called problem or if we need the federal or local government to wave a magic wand. In the meantime the market is building plenty of supply to meet the tight demand.
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