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Experts Predict Level Playing Field as Investors Withdraw

A majority of experts surveyed by Zillow and Pulsenomics expect large-scale investors will pull out of the housing market in the next few years—and that hopefully means a smoother field for consumer buyers.

Out of 110 economists, real estate experts, and investment strategists surveyed in Zillow’s latest Home Value Index, 57 percent said they think institutional investors will work to sell the majority of homes in their portfolios “in the next three to five years.” These investors are largely credited with propping up housing during its recession, helping to keep sales volumes from plummeting too far.

While their withdrawal will most certainly affect today’s still-fragile market—79 percent of those surveyed said the impact would be “significant or somewhat significant” should investor activity curtail this year—Zillow chief economist Dr. Stan Humphries says it wouldn’t be the worst thing to happen to housing.

“Buyers entering the market in the next few months will not be competing with cash-rich investors like they were last year which should be small solace given the higher prices and mortgage rates that they will encounter,” Humphries said. “The gradual decline of investor activity should be viewed as another sign of the market slowly returning to normal.”

Humphries also pitched in his own opinion on a timeline, saying he agrees with the panel “that there will not be a rush for the exit by institutional investors.”

The group was also asked about their thoughts on when the Federal Reserve should end its asset purchases, an effort that has already begun with two rounds of tapering.

More than 70 percent of respondents wish to see the stimulus ended before the end of 2014—“and the current pace of tapering will get us there,” said Pulsenomics founder Terry Loebs.

“Of course, whether Janet Yellen’s Fed will maintain the current pace as new economic challenges arise remains an open question,” Loebs added.

Finally, the last question posed to experts: What will home value appreciation look like in 2014 and beyond?

Panelists arrived at an average projected appreciation rate of 4.5 percent through the end of the year--still high compared to the historical norm of 3 percent. Appreciation is expected to slow to 3.8 percent in 2015, falling to 3.3 percent by 2018.

Based on current forecasts for home value appreciation in the next five years, panelists predicted that overall home values could surpass their April 2007 peak by the first quarter of 2018.


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