Is a New Horizon for Home Values only Four Months Away?

In just four months, in February 2015, national median home values will rise higher than their pre-crash peaks in 2007 and begin setting new heights for the first time in eight years, according to a survey of 107 expert panelists in the latest Zillow® Home Price Expectations Survey. 

The February prediction—that national values will exceed the 2007 peak of $196,400 in February 2018-is a consensus of opinion expressed in the survey.  Some 30 percent of panelists said they expect the market to stabilize one to two years from now, while 40 percent said it would take three to five years. Almost 20 percent said they believe the market has either already returned to normal or will do so in the next 12 months.

Panelists, on average, said they expect U.S. median home values to rise 4.8 percent by the end of 2014 to $176,760 and then increase another 3.7 percent in 2015.

“The expert consensus calls for only a marginal increase in home values nationally for the remainder of 2014, and a leveling-off of annual increases through 2019,” said Terry Loebs, founder of Pulsenomics. “The 3.7 percent average annual appreciation rate expected by the panel for 2015 represents a 20 percent drop from the rate expected for this year. Although this projected decline is significant, it’s a less dramatic call compared to that made by our panelists one year ago, when they correctly anticipated a much larger change from 2013′s 7.3 percent home value appreciation rate by projecting  4.3 percent for 2014

In the longer term, respondents said they are most concerned by low household formation rates, would-be first-time buyers in a weak financial position and demographic changes that are affecting the housing market.

Shifting demographics and would-be first-time homebuyers financially ill-prepared to buy will continue to hold back the housing market over the next several years.  The millennial generation is delaying home purchases – both for financial reasons, as high rents make it difficult to save, and because they are generally waiting longer to marry and have children. Because rent is so high, many renters are forced to find roommates to share the costs, and more than a third of U.S. adults are living with a roommate, up from a quarter in 2000[iv]. As a result, household formation rates are well below average, slowing the housing market’s recovery.

A recent national survey of Millennials by loanDepot found that an increase of 15 percent or less in annual income will be enough to turn nearly one third (29%) of Millennials into home buyers, according to a new national survey of Millennials commissioned by loanDepot LLC, one of the fastest growing nonbank lenders in the nation. This means Millennials earning the $98,200  median household income for college-degreed adults need $14,730 more a year  to qualify for a median priced home of $210,000.  The potential impact of a 29 percent increase in Millennial home buyers could result in approximately 449,500 more homes sold valued at a total of $94.4 billion.

The loanDepot survey of more than 1,000 Millennials who don’t own a home also found more than a third (35%) plan to buy within five years and they’re acting now to turn dreams into a reality. They’re getting their credit in order (58%), paying down debt (47%) and saving for a down payment (47%0.

Additionally, those near retirement age are staying in their homes longer rather than selling and downsizing or renting. Those two demographic factors are contributing to a falling homeownership rate and tighter than normal inventory levels, respectively, and are among the reasons experts say the market is being held back from a full recovery.

“We’ve reached a point in the recovery where the only real cure-all is time,” said Zillow Chief Economist Dr. Stan Humphries. “The market remains very challenging for younger, first-time homebuyers who face an uphill battle saving for a down payment, qualifying for a mortgage and finding an affordable home to buy. At the same time, many older homeowners are trapped underwater or are unable to find buyers for their homes. But the landscape is slowly changing, as incomes begin to grow, negative equity fades and new households start to form. These shifts won’t occur overnight, but they are happening. Patience will be a virtue over the next few years as we wait for these traditional fundamentals to more fully take hold in the market.”

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