Strong Home Prices Expected to Continue Through at Least 2021

After watching the for-sale housing market largely shrug off the potential impacts of the coronavirus pandemic this summer, a panel of experts is singing a much more bullish tune about short-term home price performance than in the spring. But a few clouds appear when looking further out. Skepticism remains in the long term with elevated unemployment expected to persist into the next decade.

The Zillow® Home Price Expectations Surveyi, sponsored by Zillow and conducted quarterly by Pulsenomics LLC, asks more than 100 economists, investment strategists and real estate experts for their predictions about the U.S. housing market. The Q3 survey focused on the short- and long-term outlook for home prices, as well as expectations for U.S. unemployment.

Just three months ago, when the housing market was in the midst of what turned out to be only a brief lull in activity, the panelists expected a slight (0.3%) decline in home prices for 2020. That dip has failed to materialize thus far as historically low inventory and heavy buyer demand have pushed up prices, and panelists have adjusted expectations accordingly.

Panelists are now more optimistic than they were even before the pandemic, forecasting a 3.7% increase in home prices this year compared to an average expectation for a 3.3% increase in the first quarterly survey of 2020. Expectations for home prices in 2021 were also raised, up to 2.7% average forecasted growth from 0.9% last quarter, marking the most optimistic the panel's outlook for 2021 has been 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," said Zillow economist Treh Manhertz. "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."

The panel is now nearly unanimous in their view that home prices will rise this calendar year, with only two of 104 respondents indicating expectations for a nationwide price fall. In the previous (Q2 2020) survey, 48 of 106 respondents expected a decline.

"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 next year, panelists on average downgraded their home value growth forecasts. Price growth expectations are down from last quarter for 2022 (2.7%, down from 2.9%), 2023 (3%, down from 3.3%) and 2024 (3.3%, down from 3.6%).

Experts with lingering reservations about the sustainability of home value growth are focused on the labor market, where a consensus is forming that employment will take years to recover to pre-pandemic levels. On average, panelists indicated a 44% probability that the U.S. will return to 3.5% unemployment—the level recorded in February—by the end of the decade. Even those who believe it's likely we will reach that milestone during the 2020s typically think it will take until at least mid-decade to recover—71% said 2025 or later is the soonest that the record-low rate from February will be revisited.

—Zillow

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