Shifting demographics and would-be first-time homebuyers financially ill-prepared to buy will continue to hold back the housing market over the next several years, according to the latest Zillow Home Price Expectations Survey. Despite these hurdles, nearly all of the 107 panelists surveyed said they expect the housing market to normalize within the next five years. The survey of economists, real estate experts and investment and market strategists asked panelists to predict the path of the U.S. Zillow Home Value Index into 2019, and solicited opinions on what is holding back the housing market recovery and when it is expected to normalize. The survey was sponsored by leading real estate information marketplace Zillow Inc. and is conducted quarterly by Pulsenomics LLC.
The millennial generation is delaying home purchases—both for financial reasons, as high rents make it difficult to save, and because they are generally waiting longer to marry and have children. Because rent is so high, many renters are forced to find roommates to share the costs, and more than a third of U.S. adults are living with a roommate, up from a quarter in 2000. As a result, household formation rates are well below average, slowing the housing market's recovery.
Additionally, those near retirement age are staying in their homes longer rather than selling and downsizing or renting. Those two demographic factors are contributing to a falling homeownership rate and tighter than normal inventory levels, respectively, and are among the reasons experts say the market is being held back from a full recovery.
"We've reached a point in the recovery where the only real cure-all is time," said Zillow Chief Economist Dr. Stan Humphries. "The market remains very challenging for younger, first-time homebuyers who face an uphill battle saving for a downpayment, qualifying for a mortgage and finding an affordable home to buy. At the same time, many older homeowners are trapped underwater or are unable to find buyers for their homes. But the landscape is slowly changing, as incomes begin to grow, negative equity fades and new households start to form. These shifts won't occur overnight, but they are happening. Patience will be a virtue over the next few years as we wait for these traditional fundamentals to more fully take hold in the market."
Asked when they expect the U.S. housing market to normalize, 30 percent of panelists said they expected the market to stabilize one to two years from now, and 40 percent said it would take three to five years. Almost 20 percent said they believe the market either already has returned to normal, or will in the next 12 months.
Panelists said they expect U.S. median home values to rise 4.8 percent in 2014, on average, to $176,760, and another 3.7 percent in 2015. Panelists said they expect national median home-prices to exceed $196,400—their 2007 peak—in February 2018.
"The expert consensus calls for only a marginal increase in home values nationally for the remainder of 2014, and a leveling-off of annual increases through 2019," said Terry Loebs, founder of Pulsenomics. "The 3.7 percent average annual appreciation rate expected by the panel for 2015 represents a 20 percent drop from the rate expected for this year. Although this projected decline is significant, it's a less dramatic call compared to that made by our panelists one year ago, when they correctly anticipated a much larger change from 2013's 7.3 percent home value appreciation rate by projecting 4.3 percent for 2014."
