Where Are Home Prices Going?

This is the big question on many people's minds and the answers vary. There are discussions of a ‘housing bubble’ created by rapidly increasing prices crushing demand or that increasing interest rates will reduce purchasing power which will force prices down. Other see the still historically low interest rates, new household formations, and pent up demand from the recession continuing to fuel strong upward price pressure.

So what do the experts have to say? Every quarter Pulsenomics surveys a panel of over 100 economists, real estate pundits, and real estate investment strategists about where they think prices are headed over the next five years. They average the projections and report a single number. In the latest survey, home values are expected to appreciate 6.7% this year. The annual average appreciation is expected to be 4.7 percent over the next five years which is more than the historical rate of 3.8 percent. Cumulatively they expect appreciation will be 23.7 percent by 2017.

In our opinion, affordability in greater Lansing, despite increasing mortgage interest rates, a strong local economy with the accompanying consumer confidence, and escalating rents driving value investors and first time buyers as well will continue to put upward pressure on prices. New home builders are at least two years away from fulfilling current demand which puts additional pressure on existing homes.

There is still a large gap between average selling prices now and those at the peak  in 2005-2006 providing much room for appreciation. So far this year prices on average have increased here 8.4% but there are big variations from area to area with some actually declining. Even if we only project the historically average price appreciation the market here should be quite healthy for years to come.