Zillow's top economist looks at local market's coming year


The local real estate market is “stellar,” says Stan Humphries, chief economist of the real estate website Zillow.com.

But do not expect this shooting star to continue lighting up the home value landscape as brightly in the coming months, he adds.

Based in Seattle and touring Florida this week, Humphries sat down for an interview with the Herald-Tribune following a speech to a group of Realtors in Tampa on Wednesday.

rhumphries31bNoting the Sarasota region’s 13 percent gain, and Tampa’s 14 percent increase, in home values over the past year, Humphries predicts the rise will be closer to 4 percent in the coming 12 months.

“Our forecast nationally is for moderation in home price appreciation,” he said. “Nationally, we think we will grow at about 4.8 over the next 12 months, relative to having grown 6 percent over the past 12 months.”

The forecast for Sarasota is 4.3 percent.

“We think mortgage rates are going up and affordability is going down, and that is a huge demand driver,” Humphries said. “Those two things are going to limit demand. Then we think the supply side is going to contribute to a slowdown in price appreciation because new home starts are going to continue to go up. A lot of those people who are free from negative equity are going to choose to put their homes on the market, which is going to solve the inventory constraints we are seeing.”

But for now, he noted, “Home values are doing fantastically well. In the national context, home values traditionally appreciate 3 percent a year, so 13 percent is stellar. The national market appreciated about 6 percent in the past 12 months.

“The markets that are doing the best, not coincidentally, had the biggest hits in the recession. There was a massive reset in affordability in the Florida markets, Las Vegas, Phoenix and California. And they are all doing very well now.”

Humphries says the housing market’s recovery has been “even brisker” than Zillow’s team of economists expected.

“It has been an amazingly strong recovery,” caused by the “huge reset in affordability,” making home ownership appear “very cheap relative to renting in these markets,” he said.

“What has added to the huge price reset is the stimulus that the Federal Reserve continues to push into the marketplace by buying $85 billion in mortgage-backed securities and Treasuries every month,” Humphries noted. “It has kept mortgage interest rates low, and that has made homes appear even cheaper than they would otherwise. That has been a huge demand stimulus.”

Humphries said 23 percent of homeowners with mortgages still owe more than their homes are worth, contributing to a lack of homes for sale in the face of rising demand. That has pushed up prices.

“That 23 percent is made up of people who might normally be in the market but can’t sell the house they are in,” said Humphries, “so they are not participating in the market. That has contributed to the supply shortages nationwide.”

Normally, an increase in demand will encourage owners to take advantage of higher prices by selling, he said. “That contributes to liquidity to help stabilize prices.”

But the home-equity issue is twisting that scenario. Humphries said the “effective negative-equity rate,” or the number of mortgaged owners who do not have at least 20 percent of equity in their homes, is crimping supply.

“It is hard for them to sell their houses and buy others because they cannot clear the transaction costs on the current houses and afford the down payments (and closing costs) on the next ones.

“Half the people in Tampa are in effective negative equity. Half the people who would otherwise be trading a home are not there, making it a thinly traded market with more volatile price behaviors.”

The economist said that in hot markets, such as Florida, California, Phoenix and Las Vegas, all of which fell far during the decline, prices are rising at “far-from-normal levels. That cannot go on for long. Then you would get a housing bubble, and people decide the should rent rather than buy.”

Humphries said Tampa and Sarasota “are not there yet,” and he is not concerned about a bubble forming here. The risk is much higher in California’s high-cost markets, where mortgaged owners spend more than a third of their incomes on principal and interest payments on their mortgages.

Many observers of the market fret that Florida home values, which fell 50 percent in some markets during the decline, have far to go to reach boomtime levels. Economists such as Humphries say such a recovery will happen eventually, but it should not happen too soon.

“We certainly don’t want to be back there right now,” he said. “It is too soon after that peak. Nationally, according to Zillow’s Home Value Index, we are still 17 percent off our peak. Five years later, we do not want to be there right now.

“In nominal terms, we will be back there eventually, because things inflate. But it will be many years from now. Nationally we are appreciating at 6 percent a year, and we think next year values are going to grow by 4.8 percent, and start to slow down from there. That would be, best-case, four or five years. But in a market like Tampa, which is still 42 percent off of its peak, it would take longer.”

Users of the popular Zillow.com website and mobile app often complain that the “Zestimate” home-value estimate for their homes is often grossly inaccurate, in their view. Humphries said the Zestimates will increase as higher-priced transactions close.

“The (computer) models are being trained by recent transactions,” he said. “The models are designed such that the evaluation is systematically unbiased, which means just as many sales will occur above the Zestimate as below the Zestimate. It is challenging in a quickly moving market, when appreciation gets absurdly high. When markets are growing extraordinarily fast, and you pull in prices from a couple of months ago, it is a fundamentally different price point and creates challenges in our models.

“How the models work is, we look at closed sales themselves and then other things that can predict that sale price, and that set (of data) includes the physical attributes of the house. Tax assessment is part of that set. In Florida, that is not as good a predictor because of the Save Our Homes” cap on increases in assessments by the county property appraisers.


Harold Bubil

Recipient of the 2015 Bob Graham Architectural Awareness Award from the American Institute of Architects/Florida-Caribbean, Harold Bubil is real estate editor of the Herald-Tribune Media Group. Born in Newport, R.I., his family moved to Sarasota in 1958. Harold graduated from Sarasota High School in 1970 and the University of Florida in 1974 with a degree in journalism. For the Herald-Tribune, he writes and edits stories about residential real estate, architecture, green building and local development history. He also is a photographer and public speaker. Contact him via email, or at (941) 361-4805.
Last modified: September 1, 2013
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