Zillow and Pulsenomics released their 2nd Quarter 2021 Home Price Expectations Survey a couple of weeks ago, only 2 months after the release of their first quarter survey. That first quarter survey was already pretty optimistic but these real estate experts just provided an even more optimistic outlook. If you compare the graph below to the previous one you’ll see that they are now forecasting 8.7% growth for the nation’s home prices during 2021 vs. 6.2% last quarter. According to the press release that’s “the highest for any year since the inception of the quarterly survey in 2010″.
The cumulative, 5 year forecast is now for 26.7% which works out to 4.8% per year compounded. That compares to 23.4% last quarter. Most of that difference is in 2021.
So what’s going on? Demand is still strong coming out of the pandemic and supply is still constrained by weak new home construction and the reluctance of existing homeowners to move during the pandemic. Terry Loebs, founder of Pulsenomics, addressed two of these factors:
A profound shift in housing preferences, adoption of remote employment, low mortgage rates, and the recovering economy continue to stoke demand in the single-family market and drive prices higher. Strict zoning regulations, an acute labor shortage, and record-high materials costs are constraining new construction, compounding disequilibrium, and reinforcing expectations that above-normal rates of home price growth will persist beyond the near-term.
As part of a follow on survey the panelists were asked what they thought was constraining new construction and what could be done to encourage more. Interestingly, they mostly blamed market factors (costs, labor shortages, etc…) for constraining new construction but then thought the problem could be solved by basically reducing various government barriers to construction. It seemed pretty inconsistent to me.
Chicago Area Home Price Outlook
As usual I’m turning to John Dolan, the market maker for Case Shiller home price futures, for some semblance of where Chicago area home prices might be heading. He was kind enough to provide me with the latest data and the graph below. Note that the contract months shown are for February, which corresponds to data for the 3 months ending in December of the prior year. So this looks out through the end of 2025.
At least the graph is pointing upwards now. Before the pandemic that was not true. It was kinda flat. From the end of 2020 the cumulative appreciation now works out to 15.9%, which is obviously much lower than the outlook for the nation discussed above. Sad. And that works out to 3.0% per year. These numbers are almost negligibly better than they were the last time I checked on them.
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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.