Forecasters Fear Another Housing Bubble

TheStreet.com

NEW YORK (MainStreet) —As home values rise, helping to heal a battered market, real estate forecasters are beginning to fear another housing bubble is looming on the horizon.

The survey of 105 economists, real estate experts and investment and market strategists predicted home values to end 2013 up an average of 5.4% year-over-year, with a median U.S. home value to rise to $165,280, up from $156,800 at the end of 2012.

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While survey respondents were more optimistic on near-term home value appreciation this year and into 2014, their expectations for nationwide home value growth for the following three years were slightly more pessimistic than in prior surveys. On average, panelists said they expect annual home value growth between 3.5% and 3.7% from 2015 through 2017, down modestly from previously expressed expectations in the 3.6% to 3.8% range. Cumulatively, survey respondents predicted home values to rise 22.3%, on average, through 2017. The survey was conducted by Pulsenomics for real estate information marketplace Zillow (Z).

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But the good news regarding rising home values is tempered with a gloomy forecast, as most expressed fears that the Federal Reserve could be inflating a new housing bubble.

"The panel's expectations of near-term home value appreciation remaining above historic norms are consistent with a market struggling to satisfy strong demand from buyers attracted by rock-bottom interest rates and improving economic conditions," said Zillow Chief Economist Stan Humphries. "But looking further out, that appreciation will have to moderate as interest rates rise, or else homes that seem affordable today – despite rapidly rising values – are going to look very expensive relative to people's incomes as it gets more costly to finance a home. How the Federal Reserve handles the eventual winding down of its policy of quantitative easing will be critical in determining if the current period of rapid appreciation is a benign bounce off the bottom, or a more dangerous bubble being re-inflated."

To boot, 48% of survey respondents said there was a moderate to high risk of a new housing bubble, due to the Federal Reserve's current intent to maintain mortgage interest rates near historic lows.

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