Home value appreciation will slow in coming years, enough eventually to pave the way for a smoother transition from renting to homeownership and an uptick in the U.S. homeownership rate by the end of the decade, according to Pulsenomic’s quarterly survey of more than 100 economists sponsored by Zillow.

Overall, the experts said they expect home values to rise more slowly in coming years and the homeownership rate to stabilize before rising slowly. Panelists surveyed expect home values to end 2015 up 4.1 percent year-over-year, on average, down from the 4.3 percent year-end prediction made by the same panel last quarter. Home value appreciation is expected to slowly level off beginning next year (3.4 percent average annual expected appreciation) and through 2019 (3.1 percent average annual expected appreciation).

 

Pass the Price Peak in 2017

This trajectory would see the median U.S. home value rise above the April 2007, bubble-era peak of $196,400, on average, by December 2017. The most optimistic panelists predicted home values would surpass bubble-era peaks as soon as February 2017, while the most pessimistic said pre-bubble peaks would not be met or exceeded before the end of the decade (figure 1).

They expect the U.S. homeownership rate to rise only slightly, to 63.7 percent, over the next five years.

But rental demand will remain high near-term, fueling a growing rental affordability crisis for which rent control is an increasingly visible, but ultimately unviable, solution, the panel said.

“The panel’s expectation for U.S. home values fell to a 3.4 percent average annual rate for the five-year forecast horizon. This is the first time in 18 months that this proxy for experts’ housing market sentiment has weakened, and it’s the lowest rate recorded in three years,” said Pulsenomics Founder Terry Loebs. “With slow wage growth persisting and monetary policy liftoff looming, home price expectations may continue to drift lower for some time.”

 

Homeownership on the Rise – Slowly

But there is a silver lining to slower home value growth. A slower-moving market gives renters, particularly younger renters, more breathing room to save for a down payment and prepare for the jump to homeownership. The national homeownership rate is currently 63.4 percent and has been falling steadily over the past several years. But more than two-thirds of panelists (69 percent) said they expect the homeownership rate to rise over the next five years, however modestly, coinciding with a slowdown in home value growth. On average, panelists said they expect the homeownership rate to rise to 63.7 percent by 2020.

In the short-term, however, panelists said they expected the national homeownership rate to remain at 63.4 percent, on average, over the next two years. Fewer homeowners means more renters, and high rental demand coupled with limited rental inventory and stagnant wages is contributing to a growing rental affordability crisis. A rising homeownership rate will help take some of the pressure off of rents, but both this most recent survey and prior surveys indicate the rental affordability problem is likely to loom large for at least the next few years, even as cities struggle to cope today.