Many consumers are wondering what will happen with home values over the next few years. Some are concerned that the recent run-up in home prices will lead to a situation similar to the housing crash 15 years ago.
However, experts say the market is totally different today. For example, Odeta Kushi, Deputy Chief Economist at First American, tweeted just last week on this issue:
“. . . We do need price appreciation to slow today (it’s not sustainable over the long run) but high price growth today is supported by fundamentals- short supply, lower rates & demographic demand. And we are in a much different & safer space: better credit quality, low DTI [Debt-To-Income] & tons of equity. Hence, a crash in prices is very unlikely.”
Price appreciation will slow from the double-digit levels the market has seen over the last two years. However, experts believe home values will not depreciate (where a home would lose value).
To this point, Pulsenomics just released the latest Home Price Expectation Survey – a survey of a national panel of over 100 economists, real estate experts, and investment and market strategists. It forecasts home prices will continue appreciating over the next five years. Below are the expected year-over-year rates of home price appreciation based on the average of all 100+ projections:
- 2022: 9%
- 2023: 4.74%
- 2024: 3.67%
- 2025: 3.41%
- 2026: 3.57%
Those responding to the survey believe home price appreciation will still be relatively high this year (though half of what it was last year), and then return to more normal levels over the next four years.
What Does This Mean for Your Buyers?
With a limited supply of homes available for sale and both prices and mortgage rates increasing, it can be a challenging market to navigate for a buyer. But buying a home sooner rather than later does have its benefits, as waiting to buy will most likely cost more in the future. Buying now can also position your clients to make future price increases work for them by generating equity.
One way of articulating this to clients could be by using a graph, such as the one below. Assuming a home is purchased at $360,000 in January of this year (the median price according to the National Association of Realtors rounded up to the nearest $10K), factoring in the forecast for appreciation from the Home Price Expectation Survey, this could accumulate over $96,000 in household wealth over the next five years:
If you have clients that are waiting for rates to drop or prices to cool, it will most likely cost them more in the long run. Encourage them to begin building their wealth now as prices will continue to rise.