*Expectations for future home price growth among a panel of 100+ experts and economists is the most optimistic ever in a quarterly survey that dates to 2010.

*The panel expects new construction to slow in the coming years, with high costs as the main barrier. Last quarter, the same panel predicted total inventory would rise later this year thanks mainly to more existing homes being listed for sale. 

*Relaxing zoning rules would be most productive to increase new housing supply, according to panelists.

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Relaxing zoning rules to allow for more and/or more-efficient new home construction would be the most effective way to increase supply in a housing market currently near historic inventory lows, according to the latest Zillow Home Price Expectations Survey.[1] On the current path, those experts anticipate new construction growth to stall and home prices to rise, resulting in fewer of today’s 30-somethings owning homes.

High costs are expected to slow new construction momentum, a blow to home shoppers already facing an intensely competitive market with relatively few available homes when compared to the number of interested buyers. On average, the panel expects new housing starts to end the year 2.5% below December 2020 levels, and to fall an additional 2% by the end of 2022. Panelists cited the high costs of labor, materials and land as the biggest headwinds for home builders.[2] The Zillow Home Price Expectations Survey is a quarterly survey of more than 100 real estate experts and economists nationwide, sponsored by Zillow and conducted by Pulsenomics.

The results are somewhat surprising given builder confidence that has consistently stayed at very high levels since last summer, though it has fallen somewhat from highs reached towards the end of 2020. Builders seem to sense a golden opportunity to help address the shortage of available homes, especially as demand appears poised to stay high for years to come. But that optimism may not be enough on its own to make a meaningful dent in the massive shortfall in construction since the Great Recession. 

When asked what could be done to increase housing supply, relaxing zoning rules was the top choice — 56% of panelists chose it as one of up to three main factors to help increase housing supply, and it was scored as the most effective single strategy. Previous Zillow research has found even a modest amount of upzoning in large metro areas could add 3.3 million homes to the U.S. housing stock, creating room for more than half of the missing households since the Great Recession — a major reason for today’s frenzied housing demand. A majority (57%) of homeowners previously surveyed by Zillow previously said they believe they and others should be able to add additional housing on their property, and 30% said they would be willing to invest money to create housing on their own property, if allowed.

Other panelist recommendations for increasing housing supply included easing the land subdivision process, relaxing local review regulations for projects of a certain size, accelerating the adoption of new construction technologies and increasing training to build up the construction workforce. 

Of course, new construction isn’t the only path to more inventory — a majority of the same panel, when surveyed in Q1 2021, said they expect housing inventory to begin growing again this year, with an increase in existing homes being listed for sale being the most likely catalyst for inventory growth. Previous Zillow research has shown widespread coronavirus vaccine distribution could make some 14 million households newly comfortable moving that don’t necessarily feel that way now. 

With housing demand showing no signs of slowing from a pandemic-fueled boom in the second half of 2020, the expert panel again adjusted their home price growth expectations upward. The panel’s average home value growth prediction for 2021 is 8.7% — the highest for any year since the inception of the quarterly survey in 2010. That’s up from 6.2% last quarter and more than double the expectation from the Q4 2020 survey (4.2%). Home value growth is expected to slow to 5.1% in 2022, according to the panel — still strong growth compared to a historical average of about 4%. 

“A profound shift in housing preferences, adoption of remote employment, low mortgage rates, and the recovering economy continue to stoke demand in the single-family market and drive prices higher,” said Terry Loebs, founder of Pulsenomics. “Strict zoning regulations, an acute labor shortage, and record-high materials costs are constraining new construction, compounding disequilibrium, and reinforcing expectations that above-normal rates of home price growth will persist beyond the near-term.”

Panelists were also asked for their expectations on the path of mortgage rates and the homeownership prospects for millennials over the next few years. Average rates for a fixed 30-year mortgage currently sit near 3%, and panelists said they  expect a small rise to 3.45% by the end of the year, continuing to 3.99% at the end of 2022. That would add $55 to a monthly payment on a typical home at the end of this year, and $124 at the end of 2022.[3] Still, this would represent a bargain historically. Average rates were near 5% as recently as 2018, and they started the 2000s above 8%. 

In large part due to affordability challenges from rising home prices, the panel on average expects homeownership among 35-44 year-olds will drop slightly over the next five years, when that group will be dominated by millennials. The majority (54%) of experts who expect homeownership to fall among this age group by 2026 cited worsening affordability — via higher mortgage rates and/or home prices — as the top cause. 

Of the more optimistic panelists who anticipate more homeowners in this age group in coming years, most (61%) said an increased preference to own instead of rent would be the primary driver. This could possibly be a result of how the pandemic and the rise of remote work options has changed what many say they want and need in a home. 

[1] This edition of the Zillow Home Price Expectations Survey surveyed 109 experts between May 11, 2021 and May 25, 2021. The survey was conducted by Pulsenomics LLC on behalf of Zillow, Inc. The Zillow Home Price Expectations Survey and any related materials are available through Zillow and Pulsenomics.

[2] The verbatim answer options most often cited by panelists as headwinds were “high labor costs/shortage of skilled construction labor,” “high/volatile materials costs,” and “high land costs/lack of developable parcels in desirable areas.”

[3] Assuming a 20% down payment on a home purchased for $280,370, the typical home value in April according to the Zillow Home Value Index.