Home Price Outlook: 2014 Strongest Appreciation For Next 5 Years

Last week Pulsenomics released their first quarter 2014 home price expectations survey of over 100 economists, sponsored by Zillow. Their optimism for home price appreciation continues, although they became a little more optimistic about 2014 and a little less optimistic about the out years.
The graph below shows their current outlook, which works out to an average appreciation of just a tad under 3.7% per year but it’s a bit front loaded. “They” are expecting 4.5% appreciation in 2014, the largest growth over the next 5 years, slowing down to 3.3% by 2018.
It’s difficult to compare this outlook to last quarter because the time frame has changed with the new year but there is a graph in the report that compares the outlooks by year.
q1 2014 Pulsenomics home price expectations
I’m sure that an expectation of diminished investor activity is tempering their enthusiasm, though the report didn’t exactly come out and say that. The report did indicate that 57% of the respondents who had an opinion thought that investors would be selling off their portfolios over the next 3 – 5 years, which will obviously increase inventory and put downward pressure on prices. But keep in mind that most of the large scale investor activity is at the lower end of the market.
Here are Zillow Chief Economist Dr. Stan Humphries’ thoughts on the impact of investor activity going forward:

Real estate investors, both large and small, played a crucial role in helping to stabilize markets during the darkest days of the housing recession, but a decline in investor activity now isn’t necessarily a bad thing, and could have real benefits for buyers. Buyers entering the market in the next few months will not be competing with cash-rich investors like they were last year which should be some small solace given the higher prices and mortgage rates that they will encounter. The gradual decline of investor activity should be viewed as another sign of the market slowly returning to normal, and I agree with the panel’s expectations that there will not be a rush for the exit by institutional investors.

Outlook For Chicago Area Home Prices

Of course what we are really interested in is the outlook for Chicago home prices and for that I like to look to the Case Shiller futures markets. I grabbed the graph below from John Dolan’s January Review Of The CME Case Shiller Futures Market. Again, the time frame has shifted since the last time I posted John’s graph but if you look closely at the underlying numbers you’ll see that the outlook for 2017 is slightly scaled back. But the bottom line is that the market is expecting home prices to increase by 23.8% from the November 2013 value to the September 2018 value, which works out to about 4.4% per year. Better than what you can get on medium duration bonds of any quality right now.
Case Shiller Chicago futures prices
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