In light of the Case Shiller home price index update on Tuesday it’s a great time to review the Zillow and Pulsenomics 3rd quarter survey of 104 economists and real estate experts which came out last week and provides a home price forecast out through 2024. If you will recall their 2nd quarter survey, which was conducted right in the middle of the first wave of Covid-19, was abysmal, predicting a 0.3% decline in home prices for 2020 and not much of a better forecast for 2021. However, they turned that outlook right around this time and they are now predicting a 3.7% increase in home prices for this year. In fact, their 16.3% cumulative increase over 5 years works out to 3.1% per year compounded.
Terry Loebs, founder of Pulsenomics, explained the change of heart this way:
In contrast to the debate concerning the contours and sustainability of the U.S economic recovery, these survey data reveal a definitive and remarkably sharp V-shape in U.S. home price expectations. In a matter of a few months, the pandemic has turbo-charged what had been relatively limited acceptance of remote work, amplified the value of larger living spaces, and ushered in a new era of monetary accommodation by The Fed. With these fundamental forces stoking demand for homeownership amidst stubborn supply constraints, it’s hard to imagine home price expectations returning to the lows of last quarter any time soon.
However, at the same time, the panelists were asked a number of supplemental questions and their outlook for the labor market was not very encouraging. 71% said that unemployment would not return to 3.5% until 2025 or later. It begs the question of whether or not home prices can really continue to advance in such an economic environment. Perhaps the expectation is that unemployment will be concentrated among those who were not likely to buy homes anyway – i.e. lower income renters. I guess that’s possible though I’m a bit worried that sinking boats lowers the tide.
Chicago Area Home Price Outlook
In order to get a read on where home prices in the Chicago area might be headed I look at the Case Shiller home price futures market. Once again I got the graph below, along with the underlying numbers, from John Dolan of Home Price Futures. It’s pretty ugly and not nearly as optimistic as the Zillow Pulsenomics forecast above. It shows prices declining through March 2021 and then not even totally recovering by the end of 2024. In fact, over that entire period it shows a 1.4% total price decline.
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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.