Three months ago, a panel of over 100 economists, investment strategists and real estate experts polled by Pulsenomics LLC in a survey sponsored by Zillow predicted that home prices would decline slightly in 2020, by approximately 0.3 percent. Now, after an unexpected surge in buyer activity amidst historically low mortgage rates, those experts have revised their predictions substantially.
Panelists surveyed during the third quarter now believe home prices will increase by 3.7 percent this year, and expectations for home prices in 2021 have also improved. Last quarter, experts predicted home prices in 2021 would increase 0.9 percent — now they’ve revised that prediction to 2.7 percent, the most optimistic outlook for 2021 since Q1 2018.
“In many ways, the pandemic has helped supercharge a pre-existing housing supply shortage that has struggled to keep up with strong demand,” Zillow economist Treh Manhertz said in the report. “Many of those fortunate enough to have kept their jobs are looking to take advantage of low mortgage rates by jumping into the market, and they’re finding competition to be fierce with inventory as limited as ever. The longer-term path for prices will depend largely on the course of inventory, including whether homeowner finances are stable enough to avoid a wave of distressed sales when forbearance terms expire and at what level builders, who are reporting sky-high confidence, can bring homes to market.”
In the last quarterly survey Zillow and Pulsenomics LLC conducted during the second quarter of 2020, panelists were split between whether or not home prices would fall this year with 48 out of 106 respondents anticipating a decline. During this quarter’s survey, only two panelists predicted prices would decline during the remainder of this calendar year.
“In contrast to the debate concerning the contours and sustainability of the U.S economic recovery, these survey data reveal a definitive and remarkably sharp V-shape in U.S. home price expectations,” said Terry Loebs, founder of Pulsenomics. “In a matter of a few months, the pandemic has turbo-charged what had been relatively limited acceptance of remote work, amplified the value of larger living spaces, and ushered in a new era of monetary accommodation by The Fed. With these fundamental forces stoking demand for homeownership amidst stubborn supply constraints, it’s hard to imagine home price expectations returning to the lows of last quarter any time soon.”
Beyond 2021, however, experts have tempered their home price growth expectations. Price growth predictions are down from last quarter for 2022 (2.7 percent, down from 2.9 percent), 2023 (3 percent, down from 3.3 percent) and 2024 (3.3 percent, down from 3.6 percent).
Declines in optimism for future years is largely stemming from the expectation that the labor market will take several years to recover to pre-pandemic levels. On average, panelists surveyed believe there’s a 44 percent chance that the U.S. will return to the 3.5 percent unemployment seen before the pandemic by 2030. Still, 71 percent of panelists believe it will take until at least 2025 for that rate of unemployment to return.