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INDUSTRY EXPERTS PREDICT PRICE GROWTH If projections hold true, home values will rise 22 percent cumulatively by the end of 2017, according to Zillow's first-quarter Home Price Expectations Survey. For its report, Zillow and Pulsenomics surveyed a nationwide panel of 118 economists, real estate experts, and investment and market strategists to get their thoughts on future home values and housing market policies. On average, the panel forecasts price growth of 4.6 percent in 2013 and 4.2 percent in 2014. More moderate growth is expected after that, with annual appreciation rates between 3.6 percent and 3.8 percent for 2015, 2016, and 2017, leading to an average 4.1 percent growth rate annually for the next five years. According to Zillow, this is the first time the predicted average annual growth rate for the next five years has surpassed pre-bubble levels since the survey was created. "The panel is quite bullish on home prices near-term, considering a pre-bubble average appreciation rate of 3.6 percent per year," said Dr. Stan Humphries, chief economist at Zillow. "That said, their expectations are a bit shy of the home value gains of 5.5 percent that we saw in 2012, implying some moderation in the pace of gains." Humphries continued, "The panel expectations are consistent with continued strong home value growth this year fueled by tighter-thannormal inventory of for-sale homes and robust demand attributable to high affordability and a stronger general economy." The most optimistic quartile of panelists predicted a 6.1 percent increase in home values this year, on average, while the most pessimistic predicted an average increase of 3 percent. 42 Expectations for cumulative growth projections ranged from 34.2 percent among the most optimistic of the group to 11.7 percent among the most pessimistic. The panel also responded to questions concerning the wind-down of the GSEs and refinance options for underwater borrowers. The majority of panelists—59 percent—said they believe a "reasonable and appropriate" timeframe for winding down Fannie Mae and Freddie Mac is within the next five years. Thirteen percent suggested a timeframe within the next two years, while on the opposite end of the spectrum, 10 percent said a period of more than 10 years is the most sensible. In addition, the majority of panelists expressed support for proposals that would allow certain underwater borrowers to refinance. One such proposal is the Responsible Homeowner Refinancing Act of 2012, sponsored by Sens. Barbara Boxer (D-California) and Robert Menendez (D-New Jersey). "More than four of every five supports of these refinancing proposals said they believe that borrowers who have demonstrated an ability to make their payments in recent years would pose little or no incremental risk to taxpayers if they refinanced. Two-thirds of supports said they believe that the lower monthly payments would create a significant stimulus for the economy," said Pulsenomics founder Terry Loebs. "But the 41 percent of panel respondents who do not support these plans also hold strong views," Loebs added. "More than two-thirds of them said they believe that rewriting loan contracts is bad policy in general, and that lowered monthly payments for borrowers ultimately translate into taxpayer and investor losses." Capital Economics has revised its home price forecast upward based on strong demand and tight inventory which have brought existing-home sales back to "normal" levels. The international research firm says market conditions may also prompt lenders to "loosen the purse strings slightly." These conditions, combined with broader economic indicators, led Capital Economics to revise its previous forecast of a 5 percent home price gain this year up to 8 percent. Next year's projection is a smaller 4 percent gain. Much of the recent demand in the housing market has been the result of investment activity. Though an uptick in sales from one investor to another indicates some investors may be leaving the market, Capital Economics is confident investor demand will remain strong overall this year. At the same time, Capital Economics suggests declines in both unemployment and delinquencies will make lending conditions more favorable, "allowing mortgage-dependent buyers to reenter the market." The analytics firm doesn't anticipate any tightening of credit resulting from the Consumer Financial Protection Bureau's impending regulations. Existing home sales will rise to 5.1 million this year, and new home sales will rise to 0.5 million, up from last year's 4.7 million and 0.4 million, respectively, according to Capital Economics' projections. Sales in both categories will rise even further next year. Mortgage rates, which have risen slightly, will not impede sales, according to the firm. Rates may fall again throughout the rest of the year, but even with recent increases affordability remains high. Capital Economics expects inventory will remain tight but will not get tighter as the year progresses. Currently, the market holds about 4.6 months' supply, which is the lowest inventory recorded in the past seven years, according to the firm. The type of inventory on the market is in a transition mode as fewer foreclosures take place. "[M]ore homes that, a few years ago, would have come onto the market as foreclosures are now coming onto the market as short sales," Capital Economics said. Short sales often come at a smaller discount than foreclosures. Furthermore, foreclosed homes themselves are selling with smaller discounts. During the housing crisis, foreclosed homes sold for about 30 percent less than equivalent non-foreclosed homes. Now, the difference is about 12 percent, Capital Economics says.