At the current rate of recovery, it's going to take another three years before the housing market returns to ‘normal,’ a recent survey of more than 100 housing experts commissioned by Zillow reveals.
Among the more than 100 economists, real estate experts, and investment and market strategists surveyed in the Zillow Home Price Expectations Survey, a majority said the primary factor holding housing back is the fact that would-be first-time home buyers are financially ill prepared to buy. This is due mainly to the fact that home prices have increased dramatically during the past five years, while wage growth has remained more or less stagnant.
Not helping the situation with first-time buyers is that home prices are expected to continue to rise. Based on the survey results, experts forecast that by the end of 2014 home prices will have increased an average of 4.8% compared to 2013.
Also holding back the recovery are the low household formation rates: The number of young people getting married and having children – often a precursor to homeownership – has been steadily decreasing during the past five years, plus many young people are waiting much longer to get married. In addition, more people are renting – and with rising rents, many are unable to save for a down payment on a new home. The survey reveals that more than a third of U.S. adults are living with a roommate, up from a quarter in 2000.
What's more, those near retirement age are staying in their homes longer rather than selling and downsizing or renting. These factors not only contribute to the low household formation rate, but also to the falling homeownership rate and tighter than normal inventory levels.
Despite these hurdles, nearly all of the 107 panelists surveyed said they expect the housing market to ‘normalize’ within the next five years.
‘We've reached a point in the recovery where the only real cure-all is time,’ says Stan Humphries, chief economist for Zillow, in a statement. ‘The market remains very challenging for younger, first-time home buyers who face an uphill battle saving for a down payment, qualifying for a mortgage and finding an affordable home to buy.
‘At the same time, many older homeowners are trapped underwater or are unable to find buyers for their homes,’ Humphries continues. ‘But the 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.’
Asked when they expect the U.S. housing market to normalize, 30% of respondents said they think it will happen one to two years from now, and 40% said it would take three to five years. Nearly 20% said they believe the market has either already returned to normal or will within the next 12 months.