Editor’s note: The 2015 home price forecast and outlook below pertains to the nation as a whole. We also have individual forecasts for major cities and metro areas in the works. They will be published throughout September and October.
For many local housing markets across the U.S., 2014 was a year of appreciation. Not the thankful kind. The home-price kind. Property values rose steadily throughout the year, across much of the country. We expect to see more of the same in 2015, but to a lesser degree. In fact, this is one area where most analyst projections and predictions agree.
Home-price increases will slow most noticeably in those places where they’ve been rising the fastest (e.g., Phoenix and San Francisco). The rest of the country will be a mixed bag. Overall, however, we will likely see smaller gains in 2015 where home prices are concerned.
U.S. Home Price Predictions from Three Expert Sources
Individual projections vary based on the data being used, and the interpretation of that data. But the overall forecasting trend is the same. Most home price predictions for 2015 call for smaller gains than what we’ve seen this year. Consider the following examples:
- Capital Economics, a London-based economic research group, expects U.S. home prices to rise 4% in 2015 (nationwide average). According to Paul Diggle, the company’s property economist: “With housing approaching fair value, a slowdown in house price inflation more-or-less into line with income growth should be seen as a welcome development.”
- Earlier this month, financial data firm CoreLogic released their latest “HPI Forecast,” which predicts home-price changes both monthly and annually. They predicted that U.S. house values (including distressed sales) would rise 5.7% from July 2014 to July 2015. That was down from a 7.5% increase over the previous 12-month reporting period.
- Barclays, the multinational banking and financial services company, predicts U.S. home prices will rise 3% in 2015 and only 2% in 2016 (down from a 5% increase this year).
The overall forecast is the same across these and other sources. Appreciation will continue into 2015, but to a lesser degree compared to the current year’s gains. The smaller gains being projected for next year are largely the result of supply-side changes occurring right now. So let’s talk about that next.
Inventory Growth Could Slow House-Value Appreciation in Many Cities
One of the biggest real estate trends of the last few months has largely slipped under the radar. The media regularly report on housing starts, consumer confidence and home sales, as metrics of real estate market strength. But inventory trends are often overlooked. Inventory will be one of the driving factors in 2015, in terms of home prices.
In short, the days of inventory shortages are coming to an end in most cities across the U.S. In 2015, buyers will have more properties to choose from, which means less competition and lower sale prices over the long run.
This can be seen most clearly in the “extreme” housing markets — i.e., those places where home prices fell hardest during the bust and rose fastest during the recovery. Phoenix, Arizona is one example…
Three years ago, we reported that inventory was the main thing holding Phoenix back from a full and robust housing recovery. Demand was rising steadily back then, but a surplus of homes for sale prevented any significant appreciation in prices. But then investors came in and snatched up most of the homes, and a year later prices were soaring. Skip ahead to the present. The investors have mostly pulled out, and inventory is now growing (Realtor.com now reports a 38% increase in the total number of homes listed for sale, over the last year or so). As a result, home-price gains are now flattening in Phoenix.
Granted, this is an extreme case. Most cities across the U.S. did not see the kind of boom-to-bust-and-boom-again cycle that occurred in places like Phoenix, Las Vegas and San Francisco. But it serves to illustrate a trend that is occurring, to some degree, across much of the country.
Inventory levels are normalizing. Housing markets are normalizing. As a result, house values will likely rise more modestly in 2015, for most U.S. cities. This is a primary contributing factor in most of the 2015 home-price projections and forecasts being issued today.
That’s not to say there aren’t extreme examples on the other end of the spectrum. There are plenty of those as well. Take Sacramento, California, for example. Realtor.com reports a 26% decrease in total listings over the last year. So clearly, some local housing markets are still “shrinking,” where inventory is concerned. But this is often the result of normalization (specifically, a decline in foreclosure homes as a percentage of the total market).
The bottom line is that we will see fewer property shortages in 2015 compared to this year, and that’s good news for buyers.
Much Variation at the Local Level
U.S. home prices are often reported by the media as a single entity, as if the entire country marches in lockstep where property values are concerned. The predictions offered at the start of this story are a good example. The truth is more complicated. Housing conditions vary quite a bit at the local level. As a result, anyone considering the sale or purchase of a home should be looking at local trends and not the national headlines.
Consider just one example of regional variation:
- Positive — The median list price for homes in the Las Vegas metro area rose by 19% over the last year, according to Realtor.com. The real estate information service Zillow reported a 17.2% increase in local house values, year over year, at the time of publication.
- Negative — In Shreveport, Louisiana, on the other hand, the median list price dropped by -4.5% over the last year. Similarly, Zillow reported a -2.5% decline in home values, year over year.
This is just one example that shows the extreme variation in pricing trends, when viewed at the local level. The national trends are good for economists and policymakers. But home buyers should pay attention to price projections and forecasts in their neck of the woods.
Disclaimer: This story contains home price predictions and and forecasts for 2015, some of which came from third-party sources. These forward-looking statements are the equivalent of an educated guess. They should not be viewed as guarantees or assertions. Real estate and economic conditions change all the time. As a result, some or all of these projections may prove inaccurate over time. This information has been offered as reference material only and does not constitute financial advice. We make no claims or assertions about future conditions within the housing market or broader economy.