With home price appreciation leveling off and economic hurdles weighing on homeownership, experts expect the housing market still has at least another three years of recovery left to get back to a normal state, a new survey finds.
In a quarterly survey [1] of more than 100 real estate experts and economists, real estate data firm Zillow [2] found 40 percent of respondents believe it will take another three to five years for the housing market to normalize, based on current home price trends and homebuyer activity.
Nearly a third of panelists took a more optimistic view, predicting the market will stabilize one to two years from now, while one in five responded that housing has either already returned to normal or will within the next 12 months.
When asked about headwinds facing the market right now, respondents pointed to low household formation rates, which have been stymied in part by a challenged economy. According to another recent study from Zillow [3], more than a third of adults living in the United States were living with at least one roommate as of 2012, up from a quarter in 2000.
While those renters represent millions of potential new formations in the years to come, they remain stuck where they are as jobs and wages slowly grow.
Demographic issues are also at play, Zillow says. While more millennials seem to be holding off on major commitments—including homeownership, marriage, and parenthood—a growing number of Americans nearing retirement age are also opting to stay in their homes longer, keeping the nation's housing inventory from making any meaningful recovery.
"We've reached a point in the recovery where the only real cure-all is time," said Zillow Chief Economist Dr. Stan Humphries. "[T]he landscape is slowly changing, as incomes begin to grow, negative equity fades and new households start to form. These shifts won't occur overnight, but they are happening. Patience will be a virtue over the next few years as we wait for these traditional fundamentals to more fully take hold in the market."
Zillow's panel of experts also offered their predictions on the path of home values over the next five years. According to the company, the respondents predicted U.S. home values will end this year up an average of 4.8 percent from 2013, finishing the year at a median $176,760.
Gains next year are expected to average 3.7 percent before leveling off over the following years. On average, respondents said they expect home values to exceed their pre-recession peak in February 2018 at the predicted growth rate.
"The 3.7 percent average annual appreciation rate expected by the panel for 2015 represents a 20 percent drop from the rate expected for this year," said Terry Loebs, founder of Pulsenomics [4], which conducts the survey for Zillow. "Although this projected decline is significant, it's a less dramatic call compared to that made by our panelists one year ago, when they correctly anticipated a much larger change from 2013's 7.3 percent home value appreciation rate by projecting 4.3 percent for 2014."