More Optimism For Home Price Appreciation Despite What Zillow Says

Zillow and Pulsenomics just released their 1st quarter 2018 Home Price Expectations Survey of over 100 real estate experts the other day and it looks like they had some junior analyst writing the press release. Despite their headline about more pessimism from the real estate experts in light of the new tax laws they are in fact more optimistic. They got the math wrong – possibly as a result of 2017 replacing 2016 as the starting point. In addition, there is some other strangeness in this survey.
Let’s start with the data in the graph below which shows a cumulative forecast of 18.2% over the next 5 years. That works out to 3.4% per year. They got that part right. But when you compare it to last quarter’s survey it’s actually more optimistic. What you have to do is back out the 5.6% projected appreciation for 2017 from that survey to see that they were actually predicting 16.9% for the five year period beginning in 2017. Yeah, that’s a lower number so they are in fact more optimistic now.

Zillow Pulsenomics Home Price Expectations Survey
The Zillow/ Pulsenomics Home Price Expectations Survey forecasts an average 3.4% annual rate of appreciation over the next 5 years.

Maybe their headline comes from the answer to the question they asked the experts “How, if at all, has the recent passage of the new tax law impacted your 5-year outlook for U.S. home values?” 41% said they were somewhat more pessimistic while 31% said they were somewhat or much more optimistic. But that’s certainly not consistent with the numbers they put down. Go figure.
The press release has some poorly worded explanation of why the real estate experts may be more pessimistic but the direct quote from Zillow Senior Economist Aaron Terrazas made more sense.

…the longer-term outlook is less rosy. There is some concern that tax cuts at this point in the business cycle may be throwing fuel on an already ranging fire and could lead the economy to overheat. Most economists we surveyed see a stronger outlook for the housing market over the next year or two but a more pessimistic outlook on the longer horizon.

They did note that the experts raised their home price forecast in the short term due to limited inventory.
Zillow also attempts to answer what if the housing bust didn’t happen? Basically they look at where home prices would be today if home prices had just continued to advance at their historic annual average of 3.6% and they conclude that we would be 4% higher than where we are today.

Amazon Headquarters City Rankings

They also asked these folks which city they thought was most likely and least likely to land the new Amazon headquarters and then they ranked the cities by the net votes in favor of selection. You can see the ranking results in the table below and Chicago didn’t fare so well. Reasons that held us back included location (seriously?), climate (OK…I get that), and cost of doing business (yeah, I get that too).

Amazon Headquarters City Rankings
The real estate experts are not impressed with Chicago’s chances of landing the new Amazon headquarters.

Outlook For Chicago Area Home Prices

Whenever Zillow and Pulsenomics do their quarterly home price expectations survey I like to check in with John Dolan who is the market maker for the Case Shiller home price futures contracts. These financial instruments provide a market based forecast of where home prices are heading in 10 different metro areas and their composite.
John was kind enough to provide the chart below for the Chicago contracts along with pricing information. From September 2017 – September 2020 the implied appreciation works out to 2.8% per year, which is much lower than the appreciation in the mid 3s that we have been achieving lately. But if you look at the graph you will also see that it is essentially flat after 2020. Overall, not a very optimistic outlook for the city.

Chicago home price forecast
The Chicago Case Shiller home price futures contracts provides a “forecast” of Chicago home prices

#ChicagoHomePrices #HomePrices
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.

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