A couple of weeks ago Zillow released their Third Quarter Home Price Expectations Survey results. The survey of 100 housing experts is prepared by Pulsenomics and this quarter the consensus national home price forecast is yet again a bit more optimistic than it was the previous quarter. Last quarter they were predicting 4.0% appreciation in home prices for 2016 but now they are predicting 4.5% appreciation. In addition, they raised their 5 year outlook to 18.7% cumulative appreciation (see the graph below - you can click on it for a larger version) from 17.5% last quarter. That 18.7% number amounts to 3.5% compound appreciation per year.
Pulsenomics founder Terry Loebs provided the following perspective on the survey results:
This projection implies a somewhat cooler, but still solid, second half of the year. Although further price moderation is expected next year, nearly 90 percent of the panel is projecting lower home value gains in 2017. The longer-run outlook for housing market performance remains steady. Overall, the expected five-year average annual growth rate for home values actually rose, albeit slightly, for the first time in three years.
Outlook For Chicago Area Home Prices
If these so-called experts are to be believed Chicago may benefit from a shift in migration back to the Midwest, away from the coasts. Over half of the survey respondents either believe that this shift has already begun or that it will begin soon. 56% of this group believe that the shift is being driven by employers looking for cheaper places to expand since the coasts have become too expensive for them. Another 24% of this group believes that the difference in housing costs between the coasts and the midwest will also drive migration back to the Midwest. Well, it's about time someone figured all this out! The cost of living in cities like New York, LA, and San Francisco is crazy and home prices in Portland have been on a tear.
This narrative is consistent with the data I posted a couple of weeks ago on how the Chicago area has hit a new employment high recently.
Finally, another 13% of this subgroup believes the migration will be driven by quality of life advantages available in the Midwest.
Given that there is a market for futures contracts on the Chicago Case Shiller home price index we can look to that for some indication of where "the market" thinks Chicago home prices are going. The graph below was provided by John Dolan who is the market maker for these contracts and who maintains the HomePriceFutures.com Web site. The graph shows where the index has been historically, what the current bids and offers are on the contracts, and where those bids and offers were back in December 2014. As you can see the bids and offers have moved down just a tad since then - i.e. the market is a bit less optimistic now.
The furthest out contract is for November 2018, which would correspond to the index value for September 2018, and it's somewhere around 144.9. That is once again higher than the last time I looked and it works out to about 3.1% annual appreciation from the last reported numbers.
Gary Lucido is the President of Lucid Realty, the Chicago area's full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate market, get an insider's view of the seamy underbelly of the real estate industry, or you just think he's the next Kurt Vonnegut 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.