SEATTLE-More than 100 forecasters said they expect the Zillow Home Value Index to end 2013 up an average of 6.7% year-over-year, according to the latest Zillow Home Price Expectations Survey, a significant jump from the 5.4% annual increase predicted the last time the survey was conducted.
Additionally, while relatively few respondents expressed concern about the impact of recent increases in mortgage rates, most believe that rates of 6% or higher would pose a significant threat to the housing recovery.
The survey of 106 economists, real estate experts and investment and market strategists was sponsored by locally based Zillow Inc. and is conducted quarterly by Pulsenomics LLC. Panelists said they expected median US home values to rise to $167,490 by the end of this year, up from $156,900 at the end of 2012 and $161,100 currently. Based on current expectations for home value appreciation over the next five years, the panelists on average predicted that US home values could approach new record highs by the end of 2017, coming very close to the previous peak level of $194,600 set in May 2007.
Panelists expect annual home value appreciation rates this year to end on a strong note, before slowing considerably from 2014 through 2017. Panelists said they expected appreciation rates to slow to roughly 4.4% in 2014, on average, unchanged from the previous survey. This rate is expected to slow further to 3.6%, 3.5% and 3.4% in 2015, 2016 and 2017, respectively. Cumulatively, survey respondents predicted home values to rise 23.7% through 2017, on average, up from 22.3% in the last survey.
“Short-term expectations for home value appreciation through the end of this year are consistent with a nationwide housing market recovery that is both strengthening and widening, but still coping with high levels of negative equity, high demand and low inventory. Combined, these factors will continue putting upward pressure on home values for the next few months,” explains Zillow senior economist Dr. Svenja Gudell. “But the days are numbered for these kinds of market dynamics, as investors begin to pull out of some markets, mortgage interest rates rise and more inventory becomes available.”
Over the next few years, Gudell says, “these trends will help the market stabilize and will bring home value appreciation more in line with historic norms. As long as mortgage interest rates don't rise too far and too fast, most markets should be able to absorb these changing dynamics while still remaining healthy.”
The most optimistic of panelists predicted a 9.3% annual increase in home values in 2013, on average, while the most pessimistic predicted an average increase of 5.1%. Expectations among the optimists and pessimists were up from prior predictions of 6.6% and 4.2%, respectively.
Through 2017, the most optimistic panelists predicted home values would be 9% above their 2007 peak levels, while the most pessimistic predicted home values to remain 9% below peak levels.
The Impact of Rising Mortgage Rates
Panelists were also asked, on the heels of the largest three-month gain in mortgage rates since 2003, if recent increases in mortgage rates presented a significant threat to the ongoing housing market recovery. Among those expressing an opinion, 88% said no. Those panelists who responded "no" or "not sure" were then asked what minimum mortgage interest rate (on a 30-year, fixed-rate mortgage) would pose a significant threat to the housing recovery. Among these respondents, 61% said interest rates would have to rise to at least 6 percent to create a significant threat.
"Six percent is the minimum mortgage rate threshold that the most number of panelists view as a potential show-stopper for the recovery," says Pulsenomics founder Terry Loebs. "However, nobody should dismiss the implications for the housing market of the less popular view - held by 38% of our experts—that we are already flirting with a reversal of fortunes at or within about 100 basis points of prevailing mortgage rate levels."
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
