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Appreciating Home Prices

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Homebuyer_112631996Like many potential buyers and sellers, if you find yourself puzzled by where home prices are going, you are not alone.  In addition to overall U.S. economic conditions, so many uniquely local variables influence home prices that even the most seasoned housing experts seldom agree on how much—or how little—prices are expected to rise over the next five years.

Heightened Demand
On one important indicator, however, there is agreement.  The ever-quickening economic recovery is leading to significant levels of job creation; and thus to a major resumption in new household formations that had largely been put on hold during the recession.  In other words, today’s high levels of housing demand are expected to continue.

With these newly-formed households and first-time home buyers having to compete with large investors and other buyers amid steep declines in housing inventories, home prices have generally risen across the country.   Moreover in popular resort and retirement-friendly destinations such as ours, international buyers and retiring Baby Boomers are exerting that much more upward pressure on prices.   The upper end of the market both here and around the world—excluding such large international hubs as New York City and London—have been the slowest to recover.

Still, it has to be remembered that local home prices—though up over the past two years—remain well below their peak.  In Sarasota County, for example, the median price during the past 12 months has hovered at around $175,000.  This is up by nearly 31% from 2011—which is generally when area home prices bottomed—but 42% below the $300,000 range at which median prices stayed throughout most of 2005.

Economists Agree
In an attempt to provide better insights into the expected degree of price appreciation over the next five years, the independent research firm Pulsenomics regularly surveys a panel of over 100 distinguished economists, investment strategists, and housing market analysts.

Of the 110 economists surveyed for the report, all but two believe that U.S. home prices will rise between now and 2018.  For more pinpointed clarity, the survey then averages the projections of all 100+ experts into a single number.

Here, from the latest Pulsenomics survey released in March, are the results of their averaged projections:

  • Home values should appreciate by 4.5% in 2014, a pace that exceeds the historically normal annual appreciate rate of around 3%.
  • The average annual appreciation will be 3.94% over the next 5 years.
  • The cumulative appreciation will top out at 19.7% by 2018.
  • The majority of experts are also of the belief that rising home prices will prompt many large investors to begin selling-off their portfolios of rental properties over the next three to five years in order to take their profits.  The boosted inventory should help promote a more sustainable level of annual price appreciation and a smoother market ahead.
  • Even the most conservative-minded quartile of experts is projecting a cumulative price appreciation of almost 11% by 2018.

A Solid Long-term Investment
The actual rate of appreciation will probably lie somewhere in between these bullish and bearish projections.  Still, even by the most conservative estimates, a home is unquestionably a solid long-term investment that can also be lived in and enjoyed.

As home prices are typically driven by local market conditions, it is always wise to consult a full-time, locally-based real estate specialist for a complete competitive examination of the neighborhoods and price segments in which you are considering buying or selling.

Appreciating Home Prices was last modified: March 30th, 2015 by Michael Saunders