Housing is Widely Exceeding Early Expectations, but Job Market Remains a Big Concern

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·5 min read

  • Home prices are expected to grow 3.7% in 2020, according to a survey of 104 economists and real estate experts conducted by Pulsenomics and Zillow. Three months ago, panelists expected a 0.3% decline.

  • Panelists were also asked when they next expected multifamily housing starts to meet or exceed their pre-pandemic, January level of 619,000 (SAAR). A majority (55%) said that would happen no later than 2023.

  • Experts were far less bullish on a quick labor market recovery, giving just 44% odds that the unemployment rate would match its pre-pandemic low of 3.5% by the end of the decade.

Expert predictions for near-term home price growth improved markedly in the summer compared to the spring as the housing market powered past initial pandemic challenges and grew into an economic bright spot. But even as the housing market remains on largely steady ground, a full labor market recovery could remain out of reach for a decade or more, according to a Zillow survey of dozens of economists and experts nationwide.

The Zillow Home Price Expectations Survey[i], 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 and construction activity, 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 a brief lull in activity, the panelists expected a slight (0.3%) decline in home prices for 2020. Since then, the prospect of a nationwide price dip has become far less likely as historically low inventory and heavy buyer demand have pushed up prices. 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 2.5% increase in the Q3 2019 survey.[1]

Expectations for home prices in 2021 were also raised, up to 2.7% average forecasted growth from 0.9% last quarter. Beyond next year, the outlook is cloudier. On average, price growth expectations are down slightly 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%). In dollar terms, panelists expect the typical U.S. home to be worth $255,568 by the end of this year, on average, climbing to a value of $286,851 by the end of 2024.

Additionally, the experts' more optimistic expectations for this year and next come with lesser reservations concerning their long-term outlook for home value growth through 2024. Fewer than one-half (45 percent) of panelists indicated that their long-term home value expectations have downside risk, compared to nearly seven in ten (69 percent) experts who indicated such pessimism just three months ago.

Steady growth in home prices is being driven, in large part, by limited supply and high demand — and builders have taken notice and are making huge efforts to start new projects, despite some long standing challenges. Panelists were also asked for their predictions on when they next expected multifamily housing starts to meet or exceed their pre-pandemic, January level of 619,000 (seasonally adjusted annual rate) — highs not previously reached since the 1980s. A majority (55%) said that would happen no later than 2023 — with similar shares saying it would happen by next year (18%), by 2022 (19%) or by 2023 (18%).

But while panelists were largely bullish on a relatively quick return to pre-pandemic levels for the housing and construction markets, they were far less optimistic about their expectations for a full labor market recovery. Asked if they expected the U.S. unemployment rate to match its pre-pandemic low of 3.5% at any point in the next decade, on average, panelists gave just 44% odds that unemployment would match recent lows by 2030 or sooner. Among those that did say it is possible for unemployment to match its recent lows before 2030, 71% of them said it was unlikely to happen until 2025 or later.

In general, the housing market has experienced a much faster rebound to pre-pandemic norms than the job market and economy as a whole. For years, the housing market has been fueled by deep imbalances between a shortage in housing supply and strong underlying housing demand driven in large part by sustained record-low mortgage interest rates and demographic tailwinds as the huge millennial generation ages into their prime home buying years. In many ways, the pandemic has helped supercharge this dynamic. Even as millions remain unemployed, those fortunate enough to keep their jobs or that can otherwise afford to move may be looking to change their housing situations in search of more space and/or a different locale in light of increased work-from-home options, further adding to demand even as supply may remain low.

Methodology

This edition of the Zillow Home Price Expectations Survey surveyed 104 experts between August 17, 2020 and September 1, 2020. The survey is conducted quarterly by Pulsenomics LLC on behalf of Zillow, Inc. The Zillow Home Price Expectations Survey and any related materials are available through Zillow and Pulsenomics.

 

[1] Figures cited are panel-wide averages. In the previous (Q2 2020) survey, 48 of 106 respondents expected home prices nationwide to decline by some amount for the calendar year 2020; in the Q3 survey, only two of 104 indicated expectations for a nationwide price decline.

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