Future Of Price Appreciation
Over the past two years, many people have noticed the drastic increase in real estate prices. Not only are prices increasing, the are increasing at quicker rates than ever before. This has led to many consumers wondering how home prices will move over the next few years. There are some concerns that with the recent run-up in prices will lead to a similar situation we saw in the housing market 15 years ago. However, here is why that will not be the case and the future of home price appreciation.
Differences Now And Then
The biggest reason that we will not see a similar instance that we saw in the housing bubble is because the market is different now. For one, the supply of real estate is at an all-time low, unlike they were in 2008. In fact, we are in a strong seller’s market because of how low supply is. In the housing crash before, the market was considered a neutral or buyer’s side market. According to Odeta Kushi, Deputy Chief Economist at First American:
“. . . 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.”
The rate of which home prices will appreciate does need to slow. That is common amongst most economists and experts in the industry. In fact, we have already seen the rate at which home prices appreciate slow some. With prices increasing in 2021 by close to 20% nationally, it is important to note that that growth rate is not sustainable. However, prices do look to continue to appreciate further, close to 10% this year. The biggest take away from this though is that home prices will not depreciate. It is said that mortgage rates would have to reach close to 11% before demand is completely stamped out.
Future Of Price Appreciation Projections
On the same topic, here is some information from Pulsenomics. According to their Home Price Expectation Survey of a national panel over 100 or more economists, home prices will continue to appreciate over the next five years. The forecasts are modest, but do show a home price acceleration slowdown. However, it does not show what many people are hoping for silently, and that is a price decrease.
- 2022: 9%
- 2023: 4.74%
- 2024: 3.67%
- 2025: 3.41%
- 2026: 3.57%
Above are the projected numbers for price increase over the next five years. As you can see, this is a more natural rate of return on a real estate investment. After moving close to 20% in one year, it is projected to only move around 20% over the next 5 years. Those who answered in the price survey believe there will be a strong increase in prices in 2022 because of supply and demand. Even with mortgage rate increases happening rapidly in the beginning of 2022, it will not be enough to temper demand. This is especially true as people are able to lock in rates for multiple months in advance, as well as buy points towards their mortgage rates.
What The Future Of Price Appreciation Means For Buyers
As many people have discussed before, there is a limited number of housing supply on the market currently. Couple a record low supply with record levels of prolonged demand, price increases, and higher mortgage rates, and hopefully we get a more normal real estate market. However, this market can still remain challenging, as many homes sell in less than 20 days, and receive multiple offers. This is why if you are on the fence about buying, it may be a good time to jump — or get pushed over. For those who decide to wait to buy, you may have a better chance of getting an offer accepted or repairs made, but you will be paying more to mortgage the home. This is because of higher borrowing costs as well as higher real estate costs.
For a visual example, let us say that you are purchasing a home for $360,000. You purchased this home in January of 2022, at the median home price according to the National Association of Realtors. If you would factor in the current projections for home price appreciation according to the Home Price Expectation Survey, you could amass a whopping $96,343 in household wealth over the next five years. This is why real estate continues to be a leading wealth builder in America.