More than 100 forecasters polled predict that home values will rise 5.4 percent by the end of 2014 as reflected on the Zillow Home Value Index (ZHVI). However, while some expressed concern Federal Reserve policies could be creating a new housing bubble, a majority saw little risk of that occurring.
Panelists said they expected median U.S. home values to rise to $165,280, on average, by the end of 2013. The survey of 105 economists, real estate experts and investment and market strategists is conducted quarterly by Pulsenomics and sponsored by Zillow Inc.
In the previous survey conducted in late February and early March, respondents said they expected average home value growth of just 4.6 percent in 2013. Looking forward, respondents also increased their 2014 prediction – to 4.4 percent, up from prior expectations of 4.2 percent.
But while panelists were more bullish on home value appreciation through 2014, they dropped expectations for 2015, 2016 and 2017. On average, panelists said they expect annual home value growth between 3.5 percent and 3.7 percent from 2015 through 2017, down modestly from previously expressed expectations in the 3.6 percent to 3.8 percent range.
Still, the yearly increases led survey respondents to predict that home values will rise 22.3 percent, on average, through 2017.
The Federal Reserve
The U.S. Federal Reserve, however, controls one element of housing demand today – mortgage rates. It has programs in place to keep rates low to boost housing demand in a policy called quantitative easing.
Zillow Chief Economist Stan Humphries says mortgage rates will rise once the Fed backs off on quantitative easing, and higher interest rates will affect home values.
“Looking further out, that appreciation will have to moderate as interest rates rise, or else homes that seem affordable today – despite rapidly rising values – are going to look very expensive relative to people’s incomes as it gets more costly to finance a home,” Humphries says. “How the Federal Reserve handles the eventual winding down of its policy of quantitative easing will be critical in determining if the current period of rapid appreciation is a benign bounce off the bottom, or a more dangerous bubble being re-inflated.”
A housing bubble?
Most experts (52 percent) polled in the Zillow Home Price Expectations Survey see little or no risk of a housing bubble. The remaining 48 percent saw a moderate to high risk. However, some of the bubble risk also comes from federal policies rather than market conditions.
Under the Dodd-Frank financial reform legislation, banking regulators were asked to define a “qualified residential mortgage” (QRM) – a mortgage standard that would limit risk under rules also included in Dodd-Frank. The panel was also asked if this QRM definition should include a minimum downpayment. Among the survey respondents, most said the QRM should include a minimum downpayment requirement.
“Contrary to concerns expressed by certain policymakers, only a small minority of our expert panelists believe that including a minimum downpayment requirement in QRM would pose a threat to the housing recovery,” says Pulsenomics founder Terry Loebs. “The vast majority of respondents – 81 percent – believe that establishing a minimum downpayment is a good idea and would ultimately foster a healthier housing market.”
© 2013 Florida Realtors®
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