Home prices are forecast to rise 3.6% from current values over the next 12 months, according to Veros Real Estate Solutions' third quarter VeroFORECAST report.
As of the second quarter, Veros had been forecasting that home values would rise by about 3.1%; however, it upwardly revised its forecast for the third quarter based on changing market conditions.
According to the firm's latest forecast, about 94% of all markets tracked will see prices rise during the next 12 months – up from 90% of all markets in the second quarter.
This is the strongest forecast appreciation that has been seen in nearly two years, Veros says in the report.
Eric Fox, vice president of statistical and economic modeling at Veros, says the ‘top performing markets continue to confine themselves to California, Colorado, Florida, Washington and Oregon.’
‘Florida is making a bit of a comeback and is buoyed by international buyers in many markets,’ Fox says in a release. ‘Several Texas markets, such as Dallas and Austin, are still forecast to do well, although there is definitely some weakening in markets impacted by the oil and gas industry, such as Houston, Midland and Odessa [Texas].’
Low housing supply, an influx of population and low unemployment continue to be common characteristics of markets with strong home price appreciation.
Fox notes, however, that home price appreciation is slowing; thus, the firm is forecasting that home price appreciation will increase by only 2.1% during the 12 months from Oct. 1, 2016, to Sept. 30, 2017.
‘Although the next 12 months look to be strong and improving for the residential house price market, the longer time horizon is showing a bit of weakness,’ he says. ‘The primary driver for this weakening is suspected tightening that the Fed will be doing, which will likely cause mortgage interest rates to begin ticking upward. We don't see dramatic increases in interest rates. However, even a 25- or 50-basis point increase would be enough to cause consumers at the margin to drop out of the market to purchase a home, which will cause some softening overall.
‘While we do see softening in the long term, the overall market is still expected to appreciate,’ he adds. ‘We don't see a repeat of the last downturn in 2007.’Â
The weakest markets are again primarily in the eastern part of the U.S., which has 23 of the bottom 25 markets.
‘The bottom forecast markets are still, by and large, in relatively small cities within the Eastern U.S. with poor economic conditions and general population declines often spanning decades,’ Fox says. ‘The good news for these markets is that all are characterized by slight depreciation of no more than one to two percent.’