By Lawrence Yun, Chief Economist, National Association of REALTORS®
How reliable are REALTORS®’ subjective opinions of the market outlook? At the end of 2013, for example, REALTORS®, on average, expected home prices to be 4 percent higher in 12 months. Is this forecast in line with what economists are expecting? Does this match up reasonably close to what actually happens in the marketplace? Finally, are REALTORS® consistently more optimistic, more pessimistic, or perhaps more random and volatile in their outlook than other forecasters?
The following table shows the consensus forecast of economists participating in the Wall Street Journal survey (including this author), the consensus forecast of about 3,000 REALTORS®, and the actual price change as measured by the nationwide repeat-price index from the Federal Housing Finance Agency (FHFA). The economists are making their individual projections based on various economic variables such as GDP, unemployment, inflation, housing starts, months’ supply, and other commonly available economic indicators. The REALTORS®, by contrast, are making their individual forecasts based on what they see in their neighborhood, from new numbers of listings, buyer traffic, listing prices, and other on-the-ground factors.
Quite surprisingly, the expectations of economists and REALTORS® are very similar, despite the varying forecast techniques. It also appears that their forecasts are “conservative,” in a sense—there are no wild swings in the numbers compared to the actual movements in the price 12 months afterward. No forecaster apparently wants to go out on a limb in making dramatic projections. Or at least the few dramatic forecasts – one way or the other – are getting balanced out such that the consensus forecasts do not show big changes.
Nonetheless, it is worth noting the slight and steady shifts toward increased optimism in forecasts onward from 2009. The actual real-world prices also improved greatly compared to the prior years. Therefore, at least directional-wise, the forecasts are projecting correctly in terms of the momentum of home price changes. In the most recent data, as of November, both the economists and REALTORS® are projecting 4 – 5 percent gains, which would mark the best optimism in at least six years. Will that mean an even stronger actual price growth in 2014 than what we have observed in 2013 of near double-digit price appreciation? Probably not. Even though more jobs are being added to the economy with each passing month, housing affordability is getting hit from rising mortgage rates and stagnant wages. The likely scenario is for actual price increases to slow, such that they match up with the “conservative” forecast of economists and REALTORS®.
Regionally, there are notable variations in forecasts amongst REALTORS®. Stronger price gains are anticipated by REALTORS® in Arizona, California, Florida, Georgia, Louisiana, Massachusetts, Michigan, Minnesota, Nevada, North Dakota, Rhode Island, South Carolina, Texas, and Utah. The actual price increases have, so far, in 2013 been generally stronger in these states. But let’s wait and see if this trend continues or if REALTORS® are making their forecasts based on what they see in today’s conditions and not based on the likely developing conditions of the near future.
Lawrence Yun is the chief economist for the NATIONAL ASSOCIATION of REALTORS®.
For more information, visit www.REALTOR.org.
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