An economic consensus
According to the December 2011 Zillow® Home Price Expectations Survey, home prices are expected to drop 1.57 percent in the fourth quarter of 2011 and prices are forecasted to continue dropping until the housing market hits its bottom which Zillow says will be in late 2012 or early 2013 at which point, economists expect a “relatively steady annual appreciation rate of roughly 3 percent through 2016, which is slightly below appreciation rates experienced during the pre-bubble years.”
“There is a consensus among the nation’s top housing experts that we have not yet reached a bottom and are instead working through a prolonged bottoming process. Negative equity, unemployment and low consumer confidence remain the key factors delaying a true recovery,” said Dr. Stan Humphries, Zillow chief economist.
The Home Price Expectations Survey is compiled from 109 responses by a diverse group of economists, real estate experts, and investment and market strategists. The survey is based on the projected path of the S&P/Case-Shiller U.S. National Home Price Index over the coming five years.
“This report suggests that the trend of eroding expectations for a housing market recovery has come to a halt. This is encouraging, but the average survey data are still consistent with a sluggish recovery scenario where eventual price increases will be less than those thought of as normal during the years preceding the national housing bubble,” said Terry Loebs, founder of Pulsenomics LLC, the firm that conducts the survey for Zillow.
Forecasting upcoming years
Zillow reports that “looking at the expected housing market performance through the five year period ending in 2016, there continues to be significant variation among the panelists regarding their individual home price forecasts. The most optimistic quartile of panelists projects nearly 18.3 percent price growth over the next five years, while the most pessimistic quartile projects a 1.4 percent decline.”
“Given the current economic climate and uncertainty around the government’s future role in housing, it’s not surprising to see such a wide dispersion in long-term forecasts,” said Dr. Humphries. “As the market starts to stabilize, we should see individual forecasts start to converge.”
Some panelists believe the Federal Housing Administration (FHA) will require a federal government bailout within the next two years. Fully 28 percent of the 91 panelists who expressed a view indicated the likelihood of a bailout of the FHA by the federal government within the coming two years as “high” or “very high.” Is the answer increased loan limits? Half of the respondents support loan limit increases while the other half oppose it. The way forward is unclear, but most agree that prices will drop more before they improve.
