Earlier this month Zillow and Pulsenomics released their 4th quarter 2017 Home Price Expectations Survey of over 100 real estate experts. Their home price appreciation forecast, which just got extended out to 2022, shows additional optimism from the last release. In fact, each of the two previous forecasts has also been more optimistic than the one before.
Their improved outlook starts with 2017. Last quarter they were predicting a 5.1% gain but now they are expecting a 5.6% gain for this year. And their prediction through 2021, which you can see in the graph below, has gone from a cumulative 18.4% to 19.8%. The prediction through 2022 is a cumulative 23.4%, which corresponds to an average compound rate of just under 3.2% per year over the next 5 years. But as Pulsenomics founder Terry Loebs explained, "In a low-inflation environment, nominal housing gains in the three- to four-percent neighborhood will still create homeowner wealth at a pace exceeding the pre-bubble norm."
Zillow senior economist Aaron Terrazas explained some of the factors driving home price appreciation:
The American labor market is stronger than it's been in decades and Americans, particularly young Americans, are increasingly feeling confident enough to buy homes. Home building has not kept pace with this surge in demand and remains well below historical norms. We don't expect that these demand-supply imbalances will fundamentally shift in 2018: Demand will continue to grow and, though supply should increase somewhat, we still won't build enough new homes to meet this demand, contributing to higher prices. Higher mortgage rates will eat into buyers' budgets, putting even more price pressure on the most affordable homes for sale.
Outlook For Chicago Area Home Prices
Thanks to John Dolan at HomePriceFutures.com I'm able to show you the prices of the Case Shiller home price index futures that gives us some indication of what the "market" thinks is going to happen to Chicago area home prices over the next few years. Although it's not shown in the graph below John was able to give me prices for the November 2022 contract, which corresponds to the index value for September 2022 (yeah, I know it's confusing). Based upon those prices the implied home price appreciation over the next 5 years averages out to a paltry compound annual rate of just under 2.1%, which John points out is the lowest across the 10 regional futures contracts. Note that this is also lower than the national home price forecast discussed above. Yeah, people are not willing to bet on Chicago area home price appreciation.
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.