Price Realities are Blowing Away Forecasts

This was supposed to be a year of “moderating” prices and a “return to normalcy.”  Instead, upward price pressures have not abated, and red-faced economists are scrambling to crank up their forecasts as price trends at the outset of the buying season knock their protections into a cocked hat.

The culprit? Most forecasters predicted three years of rising prices would encourage more owners to sell, and supplies of homes for sale would catch up with demand, which is increasing as a result of the improving economy and continued low interest rates.

However, on the eve of the spring season, inventories still trail last year’s level, which in turn was lower than in 2014.  NAR reported total housing supplies at the end of February increased 3.3 percent to 1.88 million existing homes available for sale, but total inventories are 1.1 percent lower than they were a year ago (1.90 million) and 6 percent less than in 2014 (2.00 million).

NAR, which is been tracking inventories closely and pushing home builders to increase production, is the only major forecaster whose original estimate for 2016 price appreciation remains above the year over year price increase reported in its February Existing Home Sales release.

Early returns show that most forecasts are already too conservative.  Unless trends change and scores of additional homes are listed soon, demand will continue to drive up prices in the coming months, especially in lower price ties and hotter markets.  Already, higher prices are reported to be dampening demand (See Shortages are Killing Demand.)

Forecasted Housing Appreciation Rates