U.S. Home Price Forecast for 2017: A Return to Normalcy?

A recent forecast for U.S. home prices suggests that house values will rise more slowly in 2017, more closely matching historical averages. This follows a period of above-average gains over the last two years.

According to the real estate research team at Zillow, U.S. home prices rose by nearly 7% in 2016. That’s well above the historical average of 3% to 4% per year, over the last couple of decades.

Portland, Seattle, Dallas and Tampa led the nation in 2016, in terms of home-price increases. According to a January 19, 2017 press release from Zillow:

“Home value appreciation slowed slightly in Portland, but remains the fastest in the nation, up 13.8 percent from last December. Tampa, Seattle and Dallas saw similarly high home value growth, with home values growing nearly 12 percent from a year ago.”

U.S. Home Price Forecast for 2017: Smaller Gains Ahead?

But we probably shouldn’t expect to see such big gains in 2017. The company’s economists have forecast that U.S. home prices will rise by around 3.5% in 2017, which is on par with historical averages.

Call it a much-needed return to normalcy. In many U.S. cities, home-price gains over the last few years have outpaced wage and income growth by a wide margin. This kind of trend leads to housing affordability issues over time. California is a good example of this, though such conditions are certainly not limited to the Golden State.

The truth is that a slowdown in home-price appreciation is a good thing, from an economic standpoint. Slower gains in the housing market will give wages a chance to catch up, or at least to narrow the gap.

According to David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, home prices cannot outpace income for long, before they being to slow:

“With the current high consumer confidence numbers and low unemployment rate, affordability trends do not suggest an immediate reversal in home price trends,” Blitzer said. “Nevertheless, home prices cannot rise faster than incomes and inflation indefinitely.”

But not everyone agrees on the level of appreciation during 2017. The economists at the real estate brokerage Redfin recently predicted that U.S. home prices would rise by 5.3% during 2017, which would be very close to the 5.5% year-over-year gain they reported for 2016. So it depends on who you ask.

Housing Market Conditions Vary at Local Level

Of course, these are home price forecasts for the U.S. as a whole. Housing market conditions can vary widely from one city to the next, and especially among different regions across the country. So, from a home buyer’s perspective, these trends are best examined at the local level.

Anyone planning to enter the real estate market in 2017 should look at current trends in the city or metro area where they plan to buy. National trends and statistics are not very useful to a buyer.

For example, some cities like Dallas and Seattle are expected to outperform the nation in 2017, where home-price growth is concerned. Other cities might experience little to no appreciation over the next 12 months (Zillow’s home price forecast for San Francisco calls for a gain of only 0.3%, for instance).

The point is, every housing market is different. So home buyers should concern themselves with what’s happening locally.

Disclaimer: This article includes U.S. home price forecasts for 2017. Those projections were provided by third parties not associated with our company. The Home Buying Institute makes no claims or assertions about future housing conditions.