By: J. Elaine VonCannon Associate Broker, ABR, SRES, Property Manager
Most economists expect home prices to rise around 5% this year, before rising at around 3% over the next few years. Home price increases in recent years have been driven primarily by lack of listings, and some economists have said that prices could continue to outpace income or rent growth if more homes aren’t made available for sale.
Home Owners are finding that they may be still under water. They owe more than the market will support their sale price, which results still in short sales, foreclosure and homes being rentals.
Some economists experts have said that prices could continue to outpace income or rent growth if more homes aren’t made available for sale. This may impact the rental market keeping the rents low.
Analysts Chris Flanagan and Gregory Fitter seem to think that their view is “well out of consensus.” They say that U.S. home prices, after being undervalued relative to household incomes by around 6% at the end of 2011, have now rebounded to levels that are 9.7% overvalued. They use the S&P/Case-Shiller model for home-price index.
They estimate that home prices will rise another 3% annually in each of the next two years, well below the 9.5% annualized growth rate since the end of 2011, when the market hit bottom. That would leave prices around 12% above the “fair value” level subjected by household incomes. This forecasts modest declines in the following years, resulting in net annualized home-price gains that are flat through the middle of 2022.
So does this mean U.S. housing markets are in another bubble? If it is, it’s much less pronounced than in 2006, when home prices peaked at levels that were overvalued by nearly 59%, resulting in price declines of nearly 35% over six years.
Messrs. Flanagan and Fitter say that the regulatory framework enacted since the financial crisis in 2008 should largely prevent a return to the loose-lending standards that inflated the housing bubble. Against that backdrop, flat home prices between 2016 and 2022 “seems to us to be a fantastic outcome and exactly what policymakers had hoped for when establishing the new regulatory framework,” they write.
Look to recent home-price indexes that show that the pace of increases has already slowed, suggesting that the post-crisis boom in home prices witnessed over the last two years “is most likely over.” A new period of “exceptionally low home-price growth” in which prices will rise by just 1% a year, on average, over the next eight years “most likely has started,” they write.
So my prediction is the market will increase a little each year and still go up and down with periods of prices being flat line. My favorite phrase is it will remain a “schizophrenic market”; neither a buyer nor a seller market.
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