Real estate professionals in the United States, including economists, agents and investment strategists, don’t expect the housing market to normalize for at least three more years.
The majority of the panelists on the Zillow Home price Expectations Survey predict that home values will end 2014 up an average of 4.8% from 2013, to a median value of $176,760.
On average, respondents said they expect home values to exceed their pre-recession peak in February 2018 and in the longer term, respondents are most concerned by low household formation rates, would be first-time buyers in a weak financial position and demographic changes that are affecting the housing market.
So shifting demographics and would be first time buyers financially ill prepared to buy will continue to hold back the housing market over the next several years.
However, despite these hurdles, nearly all of the 107 panelists surveyed said they expect the housing market to normalize within the next five years.
The report suggests that people are delaying home purchases both for financial reasons, as high rents make it difficult to save, and because they are generally waiting longer to marry and have children.
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Also, because rent is so high, many renters are forced to find roommates to share the costs, and more than a third of U.S. adults are living with a roommate, up from a quarter in 2000. As a result, household formation rates are well below average, slowing the housing market’s recovery.
Additionally, those near retirement age are staying in their homes longer rather than selling and downsizing or renting. Those two demographic factors are contributing to a falling homeownership rate and tighter than normal inventory levels, respectively, and are among the reasons experts say the market is being held back from a full recovery.
‘We’ve reached a point in the recovery where the only real cure-all is time. The market remains very challenging for younger, first time home buyers who face an uphill battle saving for a down payment, qualifying for a mortgage and finding an affordable home to buy,’ said Zillow chief economist Stan Humphries.
‘At the same time, many older homeowners are trapped underwater or are unable to find buyers for their homes. But the landscape is slowly changing, as incomes begin to grow, negative equity fades and new households start to form. These shifts won’t occur overnight, but they are happening. Patience will be a virtue over the next few years as we wait for these traditional fundamentals to more fully take hold in the market,’ he pointed out.
Asked when they expect the US housing market to normalize, 30% of panelists said they expected the market to stabilize one to two years from now, and 40% said it would take three to five years. Almost 20% said they believe the market either already has returned to normal, or will in the next 12 months.
Panelists said they expect US median home values to rise 4.8% in 2014, on average, to $176,760, and another 3.7% in 2015. Panelists said they expect national median home prices to exceed $196,400, their 2007 peak, in February 2018.
‘The expert consensus calls for only a marginal increase in home values nationally for the remainder of 2014, and a leveling off of annual increases through 2019,’ said Terry Loebs, founder of Pulsenomics which conducts the survey.
‘The 3.7% average annual appreciation rate expected by the panel for 2015 represents a 20% drop from the rate expected for this year. Although this projected decline is significant, it’s a less dramatic call compared to that made by our panelists one year ago, when they correctly anticipated a much larger change from 2013’s 7.3% home value appreciation rate by projecting 4.3% for 2014,’ he added.
This article was republished with permission from Property Wire.