What Do the Next Five Years Hold for Home Pricing?

The days of home prices reaching levels seen during the real estate bubble seems to be over. Though pricing in 2013 was down 20% compared to its 2006 summer highs, the S&P Index Committee did report that prices were up 23% from their March 2012 lows in both the 10 and 20 city indexes.

While 2013 proved to be a banner year for the housing market, with an appreciation rate of 6.4 percent, experts do predict that prices will cool somewhat due to rising mortgage rates, less inventory and a lack of good bargains. In fact, most economist, real estate experts and real estate investment strategist predict a moderate annual rise in prices of 3.7% over the next five years. This translates to a cumulative change in home value of 19.7% by the end of 2018.

This housing market pricing picture is based on a recent study conducted by Zillow for their latest Home Price Expectations Survey. Zillow asked 110 experts to predict the rate of home pricing increases through 2018, as well as to give their opinions on investor activity and federal monetary policy.

Overall, the experts see home appreciation rates slowing to those seen during the pre-housing bubble, with rates rising only 3.8 percent in 2015 and only 3.3 percent by 2018. During the 2000-2007 housing bubble, home prices appreciated by as much as 7% per year. As a result, many lenders and buyers thought home prices would never fall. This belief helped to continue the growth of the market, until the bubble eventually burst.

Zillow also concluded that using the predicted appreciation rates derived from the survey, the average U.S. home value could be worth more than $200,000 by the third quarter of 2018. This would mean that by 2018 home prices would exceed the peak rates reached in April of 2007.  How this will affect the housing market over the next five years is yet to be seen, but most experts aren’t predicting another bubble, at least not yet.

Experts in the survey also weighed in on the affect that institutional investors would continue to have on the housing market. In the past several years, institutional investors have bought up thousands of foreclosed and vacant homes and after fixing these homes up turned around and used them as rental properties. While this helped drive sales volume up, it also left many would-be buyers unable to buy a home. With a shortage of housing in some cities and prices on the rise, competition for homes became extremely competitive and bidding wars ensued.

However, 79 percent of the Zillow survey experts said they see less of an impact coming from these institutional investors in 2014. With another 57% stating that they think investors will sell most of their home portfolios within the next three to five years. This would help increase home inventory and ease the competitive landscape for buyers.

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Brian Davison
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I am the CEO of EquiAlt: real estate based alternative investment firm with activities in equity, debt and private equity. Since 2008, EquiAlt's management has demonstrated a high level of competence in hundreds of distressed asset transactions, recapitalized companies while lending on landmark Las Vegas projects.

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