Home values nationwide have been growing at a breakneck pace for much of 2013 and are predicted to finish the year up an average of 6.7 percent compared with the end of 2012, according to the latest Zillow Home Price Expectations Survey. But that rapid pace of appreciation won’t last forever, and it is expected to slow considerably next year and over the next five years.
The survey of 108 economists, real estate experts and investment and market strategists was sponsored by leading real estate information marketplace Zillow, Inc. and is conducted quarterly by Pulsenomics LLC. Panelists said they expect appreciation rates to slow to roughly 4.3 percent next year, on average, eventually falling to 3.4 percent by 2018.
“The housing market has seen a period of unsustainable, breakneck appreciation, and some cooling off is both welcome and expected,” said Zillow Chief Economist Dr. Stan Humphries. “Rising mortgage rates, diminished investor demand and slowly rising inventory will all contribute to the slowdown of appreciation.”
Panelists were also asked for their views on how involved the federal government should be in a reformed mortgage finance system. A number of public and private plans for overhauling the nation’s mortgage finance system and reforming government-sponsored enterprises Fannie Mae and Freddie Mac have been proposed, all of which seek to reduce and redefine the government’s role in the mortgage market to some degree.
Among those panelists expressing an opinion, the majority (58.4 percent) said the federal government’s involvement in the conforming mortgage market should be “somewhat significant,” “significant” or “very significant.” Only 8 percent of respondents said the federal government should have a “non-existent” role in the conforming market.
Panelists were also asked to define an appropriate level of government backing for mortgage loans going forward. Among those panelists expressing an opinion about what maximum percentage of all new mortgages should be backed by the federal government, the median response was 35 percent, roughly the level seen in 2006 at the height of the housing bubble.
“Policy discussions centered on reforming the nation’s housing finance system have only just begun, and it will be very interesting to see what comes out of these debates and how the market will react to new proposals,” Humphries said. “How much mortgages will end up costing average consumers, and the continued availability of traditional mortgage products like the 30-year fixed rate mortgage, are among the critical issues currently at stake for consumers in these debates.”
“Currently, the federal government backs roughly 90 percent of all new mortgage originations in the U.S. in some form,” said Pulsenomics founder Terry Loebs. “In 2000, prior to the bubble, the government backed about 50 percent of new mortgages. These benchmarks and survey data are another reminder of the challenges that lie ahead in reforming U.S. housing institutions.”