Housing analysts lower expectations for home prices

by Kimberly Greene24 May 2019

Nearly 50 housing analysts predicted home prices in the U.S. would rise 3.3% this year, which is less than the 4% rise predicted three months ago, according to a recent Reuters poll.

The prediction may be somewhat surprising, given that interest rates are no longer expected to rise significantly, and housing inventory shortages are expected to continue. If the poll predictions come true, it will be the weakest house-price rise since 2012.

Home prices have done nothing to quell demand; low rates, rising wages, and low unemployment have contributed to the continued demand for homes. Although builders have built more properties, resulting in a 2% increase in housing from a year ago, that activity still hasn’t kept up with demand.

“Supply has not yet caught up, but it is in the improving direction, so home builders are building more, our inventory shows a little increase. I would like to see a drastic increase, but we are not getting those big substantial increases,” Lawrence Yun, chief economist with the National Association of Realtors, told Reuters.

Even though the economy is chugging along and growth beat expectations in the first quarter, there are signs of a potential slowdown ahead, and Nathaniel Karp, US chief economist at BBVA, told Reuters that that could “significantly” lower home buyer confidence and reduce the pool of potential home buyers.

Almost 60% of property analysts said that it would take at least two years for the housing supply to reach adequate levels to meet demand. Some analysts said that estimate is even longer for starter homes, which are at the lower end of the market.

Other analysts blame the latest revisions to the tax code, which reduced the amount of mortgage interest payments that homeowners could deduct.

The analysts polled predicted that home prices will slow to 3% in 2020 and 2.7% in 2021.