Zillow: Home Values To Grow 22 Percent Through 2017

by Broderick Perkins

Home values will grow incrementally by more than 4 percent a year and cumulatively by 22 percent over the next five years.

That's if growth rates exceed home value growth rates in the 12 years preceding the onset of the housing bubble that culminated in the Great Recession.

It sounds like happy days are here again in the residential real estate market, according to the Zillow Home Price Expectations Survey (ZHPES).

Zillow's panel of more than 100 professional forecasters foresee the 4.1 percent next-five-year annual home value appreciation rate exceeding the pre-housing bubble's (1987-1999) average annual appreciation rate of 3.6 percent.

The finding is the first time the predicted average annual growth rate for the next five years has surpassed pre-bubble levels since the survey's inception by Zillow three years ago.

But don't party like it's 1999 just yet.

"That said, their expectations are a bit shy of the home value gains of 5.5 percent that we saw in 2012, implying some moderation in the pace of gains. The panel expectations are consistent with continued strong home value growth this year fueled by tighter-than-normal inventory of for-sale homes and robust demand attributable to high affordability and a stronger general economy," said Zillow Chief Economist Dr. Stan Humphries.

Bring more homes to market from sellers and banks' "shadow inventory," raise mortgage interest rates, push home values too high, trip up the economy and all bets are off.

Anything can happen

It's true. A cascade of study after study points to real recovery, but anemic economic growth, creeping employment and salary gains and still tight mortgage lending could put a crimp in any forecast.

Year-by-year, Zillow says expect to see home values rise 4.6 percent this year, 4.2 percent in 2014 and then level off between 3.6 percent and 3.8 percent from 2015 to 2017.

For the five-year period, expectations for home value increases ranged from a whopping 34.2 percent, among the most optimistic quartile, to only 11.7 percent among the most pessimistic, Zillow reports.

Even at the average annual home value rate growth forecast by the most pessimistic of Zillow's forecasters, about 2.4 percent, the growth rate would not be far below the pre-bubble average of 3.6 percent.

Among single forecasters, the smallest cumulative (through the end of 2017) home value forecast was for an 11 percent depreciation.

The greatest cumulative forecast for the five-year period was for a home price appreciation rate of nearly 78 percent.

The housing market has turned—at last.

The U.S. finally has moved beyond attention-grabbing predictions from housing "experts" that housing is bottoming. The numbers are now convincing.

Nearly seven years after the housing bubble burst, most indexes of house prices are bending up. "We finally saw some rising home prices," S&P's David Blitzer said a few weeks ago as he reported the first monthly increase in the slow-moving S&P/Case-Shiller house-price data after seven months of declines.

Nearly 10% more existing homes were sold in May than in the same month a year earlier, many purchased by investors who plan to rent them for now and sell them later, an important sign of an inflection point. In something of a surprise, the inventory of existing homes for sale has fallen close to the normal level of six months' worth despite all the foreclosed homes that lenders own. The fraction of homes that are vacant is at its lowest level since 2006.

The reduced inventory of unsold homes is key, says Mark Fleming, chief economist at CoreLogic, a housing data-analysis firm. For the past couple of years, house prices have risen in the spring and then slumped; the declining supply of houses for sale is reason to believe that won't happen again this year, he says.

Builders began work on 26% more single-family homes in May 2012 than the depressed levels of May 2011. The stock of unsold newly built homes is back to 2005 levels. In each of the past four quarters, housing construction has added to economic growth. In the first quarter, it accounted for 0.4 percentage points of the meager 1.9% growth rate.

"Even with the overall economy slowing," Wells Fargo Securities economists said, cautiously, in a note to clients, "the budding recovery in the housing market appears to be gradually gaining momentum."

Economists aren't always right, but on this at least they agree: A new Wall Street Journal survey of forecasters found 44 believe the housing market has reached its bottom; only three don't. (The full results of the Journal's July survey will be released at 2pm ET)

Housing is still far from healthy despite the Federal Reserve's efforts to resuscitate it by helping to push mortgage rates to extraordinary lows: 3.62% for a 30-year loan, according to Freddie Mac's latest survey. Single-family housing starts, though up, remain 60% below the 2002 pre-bubble pace. Americans' equity in homes is $2 trillion, or 25%, less than it was in 2002 and half what it was at the peak. More than one in every four mortgage borrowers still has a loan bigger than the value of the house, though rising home prices are reducing that fraction slowly.

Still, the upturn in housing is a milestone, a particularly welcome one amid a distressing dearth of jobs. For some time, housing has been one of the biggest causes of economic weakness. It has now—barely—moved to the plus side. "A little tail wind is a lot better than a headwind," says economist Chip Case, the "Case" in Case-Shiller.

From here on, housing is unlikely to drag the U.S. economy down further. It will instead reflect the strength or weakness of the overall economy: The more jobs, the more confident Americans are about keeping their jobs, the more they are willing to buy houses.

"Manufacturing had led growth and construction had lagged," JPMorgan Chase economists said last week."Now the roles are reversed: Manufacturing growth has slowed as private construction comes to life."

Plenty could go wrong. The biggest threat is a large shadow inventory of unsold homes, homes which owners won't put on the market because they are underwater, homes that will be foreclosed eventually and homes owned by lenders. They have been trickling onto the market, slowed in part by government efforts to delay foreclosures; a flood could reverse the recent rise in prices. Or the still-dysfunctional mortgage market could get worse. Or overly zealous regulators or a post-election change in government policy could unsettle mortgage lenders or home buyers.

But the housing bust is over.

Write to David Wessel at capital@wsj.com or you can contact me at george.margrave@migonline.com or via telephone at 615-777-4663.

QUESTION: Property taxes too high?

ANSWER: We may be at the height of income tax season, but hoping you'll be getting a refund isn't the only thing you should be thinking about this time of year...especially if you're a homeowner. That's because the National Taxpayers Union (a nonprofit citizen group) estimates that between 30 and 60 percent of properties are assessed for too high of a value, resulting in an incorrectly larger property tax bill.


Taking the time to review your property tax bill could save you a nice chunk of change. And the good news is that submitting an appeal can be a fairly simple process, but make sure to take the time to fill out all forms in advance and be prepared with your documentation if there is an in-person hearing that needs to take place. To help you out, the National Taxpayers Union offers a checklist that walks you through some important steps in the process.

~~Mortgage Market Guide

If you have any questions that I can help with at this time, please call or email today. It will only take a few moments to discuss what's going in the markets and how it impacts your unique goals and situation.

You can reach me at 615-777-4663 or via email at George.Margrave@migonline.com .

Own, Rent, or Borrow?

The housing market still faces many challenges. High unemployment, foreclosures and other distress sales are keeping negative pressure on prices. This of course is good news if you are looking to buy as low rates and lower prices have brought affordability to record levels.

How Affordable? - Since 1963, it has cost an average of approximately 43% of "per capita" or individual income to finance the cost of a median priced home (20% down payment and prevailing 30 year fixed rate mortgage). Right now, it's only about half of that cost at approximately 22%.



Are you holding off on a purchase for fear that prices might fall further? - Chances are that some sellers might be thinking the same thing. If you're smart about it, you can use that as an advantage to strike the best possible deal on a home today for once a seller believes that prices have bottomed or are going back up, your advantage will be gone.



Don't confuse Price with Payments - Gambling on the expectation of a lower price tomorrow at the risk of higher rates can cost much more in the long run than locking in a sure thing today. Ex. $200,000 30 Yr. fixed loan @ 4.625% = $1028/mo. today vs. $180,000 @ 6.5% = $1137 per month later. In other words, paying less can still cost you more.



Own, Rent, or Borrow - One way or another, a home is something we all need every day. The numbers here tell the story and it's no secret that values have fallen, yet over time, that's not the case. As you can see by the chart, values over the last 10 years in most states show very healthy appreciation. And over the long haul (map), all states have positive appreciation.



We don't get a history lesson in the news because the news is about the moment and the more dramatic the better. That's what sells advertising and that's how they get paid. For the rest of us, taking a rational, longer term view of things makes more sense. This is particularly true when it comes to a home, for this is something we are likely to own for many years rather than just moments.



If you would like to discuss your options or just want to find out more, you can reach me
at 615-777-4663 or via email at george.margrave@migonline.com.