Given the current state of the housing market (high demand, tight supply, multiple bids, quick sales) it should be no surprise that economists are becoming increasing bullish on the direction of national home prices. The latest Pulsenomics Home Price Expectations Survey of 118 housing market experts shows the most optimistic outlook for home prices in the 3 years they've been conducting their survey.
As you can see in their graph below the average pre-bubble growth rate in home prices was 3.6% per year on average. Until this latest survey Pulsenomics' expert panel was always projecting future price increases to fall below this average. However, for the first time in the history of this survey they are projecting a value higher than the pre-bubble average - 4.1%. In addition, you can clearly see that these experts have been growing increasingly bullish over the last year. If you go back to my December post on the 4th quarter home price survey you can see just how their outlook had changed from the previous quarter.
Zillow sponsors the survey and according to their Chief Economist, Dr. Stan Humphries:
The panel is quite bullish on home prices near term, considering a pre-bubble average appreciation rate of 3.6 percent per year. That said, their expectations are a bit shy of the home value gains of 5.5 percent that we saw in 2012, implying some moderation in the pace of gains. The panel expectations are consistent with continued strong home value growth this year fueled by tighter than normal inventory of for sale homes and robust demand attributable to high affordability and a stronger general economy.
Rising Home Prices Could Keep Prices From Rising
The great thing about the laws of economics is that everything is self-moderating. One of the reasons that home invemtories are so low is that a lot of sellers are in a negative equity situation with their home and really can't afford to sell because they would have to write a check at closing or do a short sale and they don't want to or can't do that. However, as prices rise I would expect more homes to hit the market, thus solving the inventory shortage problem and attenuating further price increases.
Just today CoreLogic released their 4th Quarter Negative Equity Report, which shows that 200,000 additional homes returned to positive equity in the 4th quarter. That number totaled 1.7 million for all of 2012. However, Crain's points out today that Chicago experienced an increase in negative equity in the 4th quarter based upon the CoreLogic data. Frankly, I don't believe this since all the other data is indicating that home prices have been on the rise in Chicago. So how could the negative equity be getting worse?
But as Chicagoans gain equity in their homes, which seems inevitable at this point, I think it's pretty clear that more homes will hit the market and keep prices from going through the roof.
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