Zillow and Pulsenomics released their third quarter Home Price Expectations Survey a few weeks ago and their respondents are much less optimistic than they were last time we checked in with them. Their current home price forecast is reflected in the orange line in the graph below, which shows 15.1% cumulative home price appreciation by 2023. Over that 5 year time horizon that works out to an average of not quite 2.9% appreciation per year. Compare that to the 2nd quarter survey which had a 16.8% cumulative appreciation baked into it and that one was down from the first quarter. It's amazing what actual lower home price appreciation will do to the outlook.
There is a bit of discussion in the release about the impact of a shortfall in new home construction on home prices. The shortfall is blamed mostly on "scarce land, a worker shortage and high costs for permits and materials."
As Zillow Director of Economic Research, Skylar Olsen, said:
The American housing landscape was shaped in a big way by the drive for the classic American dream; swaths of cities were set aside solely for single-family, detached homes, with big minimum lot sizes and slow local review processes. Jump ahead three decades and housing affordability is a major issue across
the country. Those same practices now arguably limit the ability of the next generation to become homeowners. Without new homes to meet population growth and replace an aging housing stock, home buying is expected to move further out of reach. The most-popular solutions among experts all ultimately suggest rolling back these rules to increase flexibility and get more projects through the process faster.
We regularly hear this narrative about the low level of new construction and how it's driving a housing affordability problem. However, if new construction is missing demand by as much as everyone says it is then it's not at all clear why home price appreciation has actually been anemic lately and is forecast to remain so. It doesn't look like an affordability problem to me.
Chicago Area Home Price Outlook
The outlook for Chicago area home prices is even more bleak than for the nation. John Dolan, the market maker for the Case Shiller home price futures contracts, provided me with the contract pricing information below. Since Zillow and Pulsenomics don't collect survey data at the metro area level I use the futures market as an indicator of where the "smart money" thinks home prices are going at the local level.
As you can see from the graph the market basically says Chicago area home prices aren't going anywhere. The numbers work out to about 1% appreciation per year over the 4 year period ending in September 2022 (the November 2022 contract) and that's lower than the last time I looked at this.
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Gary Lucido is the President of Lucid Realty, the Chicago area's full service real estate brokerage that offers home buyer rebates and discount commissions. If you want to keep up to date on the Chicago real estate market or get an insider's view of the seamy underbelly of the real estate industry 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.