Forecasters expect large scale investors in the US property market to sell off the bulk of homes in their portfolios in the next three to five years, boosting inventory and potentially contributing to a smoother market ahead.
The latest Zillow Home Price Expectations Survey also shows that on average, the panellists also expect nationwide home value growth of 4.5% this year, with a steady slowdown in appreciation rates each year through to 2018.
The survey of 110 economists, real estate experts and investment and market strategists asked panellists to predict the path of the Zillow Home Value Index through to 2018 and solicited opinions on investor activity and federal monetary policy.
Throughout the recovery, large scale investors have purchased thousands of homes nationwide, particularly lower priced vacant and foreclosed homes, fixing them up and keeping them in their portfolios as rental properties.
The survey report points out that this investor activity helped put a floor under sales volumes during the depth of the housing recession, but also created competition for many would-be buyers and contributed to rapid price spikes in some areas.
Panellists were asked to assess the impact to the market if these institutional investors were to significantly curtail their activity this year. Among those panellists expressing an opinion, 79% said the impact would be significant or somewhat significant.
Panellists were also asked when they thought these investors will have sold the majority of homes in their portfolios. Among those with an opinion, 57% said they expected this to occur in the next three to five years.
‘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,’ said Zillow chief economist Stan Humphries.
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‘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,’ he added.
Panellists were also asked when the Federal Reserve should end its ongoing stimulus efforts, known as quantitative easing. Since September 2012, the Fed has been purchasing tens of billions of dollars worth of Treasury bonds and mortgage securities each month, which has helped keep mortgage interest rates low and stimulate demand. The programme is now being wound down.
‘Mortgage rates have been riding a rally in US Treasury securities caused by volatility in emerging markets in recent weeks, so the impact of Fed tapering on the housing market has been minimal thus far,’ said Pulsenomics founder, Terry Loebs.
‘More than 70% of the experts want to see the monetary stimulus reduced to zero before the end of this year, and the current pace of tapering will get us there. Of course, whether the Fed will maintain the current pace as new economic challenges arise remains an open question,’ he added.
On average, panellists said they expect nationwide home value appreciation of 4.5% through to the end of this year, a pace that exceeds historically normal annual appreciation rates of around 3%. This appreciation is expected to slow to roughly 3.8% in 2015 and 3.3% by 2018, rates much more in line with historic norms.
Based on current expectations for home value appreciation during the next five years, panellists predicted that overall US home values could exceed their April 2007 peak by the first quarter of 2018, and may cross the $200,000 threshold by the third quarter of 2018.
The most optimistic group of panellists predicted a 5.6% annual increase in home values this year, on average, while the most pessimistic predicted an average increase of 3.4%.
The most optimistic panellists predicted home values would rise roughly 10.6% above their 2007 peaks by the end of 2018, on average, while the most pessimistic said they expected home values to remain about 4.5% below 2007 peaks.
This article was republished with permission from Property Wire.