https://www.financialsamurai.com/zillow-housing-price-forecast/
As a homeowner and real estate investor, I want home prices and rents to rise. Real estate is an integral part of my Fat FIRE strategy of perpetually generating six figures in passive income. So when I saw Zillow's latest bullish housing price forecasts, I was thrilled!
Zillow believes national home prices will increase by 6.5% through July 2024, which seems overly aggressive in this high interest rate environment. The reasons include lower mortgage rates, below-average supply, and an economic soft landing.
If you have a 20% downpayment or 20% equity, a 6.5% price increase is like making a 32.5% gross return on your cash or home equity. That's a pretty hefty return.
After feeling good for a moment about my real estate portfolio increasing in value next year, reality set in. In the past, Zillow has been wrong consistently when it comes to forecasting housing prices. I don't think this time is any different.
See the map below showing Zillow's home price forecasts by region. Notice how Zillow believes home prices will rise by 2% to 10% in every state except for three regions in Louisiana.
As you may recall in a May 2, 2023 post, A Window Of Opportunity To Buy Real Estate Emerges, I also believed there was upside potential to real estate prices.
So maybe three months later, Zillow and other institutions are coming around to my point of view? I just think 6.5% is too aggressive by at least two percentage points.
Here are five reasons why I think a 6.5% annual home price appreciation is unlikely.
With housing affordability at near an all-time low due to high mortgage rates and high home prices, an aggressive home price appreciation forecast of 6.5% makes no sense.
Below is a chart that highlights the US median housing payment as a percentage of median income. At ~43.2% today, the percentage is higher than it was right before home prices started declining in 2H2006.
Here's another chart highlighting the Bloomberg Housing Affordability Index for first-time buyers. Based on the below chart, the index is at an all-time low.
