•Sixty percent of housing experts polled by Zillow don’t believe the housing market is in a bubble, compared to 32% who do.
•The panel expects to see a short recession by 2024 as the Federal Reserve works to tame inflation.
•The panel raised home price growth forecasts for 2022 as demand stays strong
The latest Zillow Home Price Expectations survey  <https://www.zillow.com/research/zhpe-q2-2022-not-a-bubble-31093/#_ftn1> polled more than 100 experts from academia, government and the private sector to gather their opinions on the state of the housing market and future growth, inflation forecasts and recession risks.
The most popular reason respondents rebuffed the bubble thesis was strong market fundamentals, including demographics, scarce inventory and shifting housing preferences. Low credit risks as a justification followed, due to sound loan underwriting and the overwhelming share of fixed-rate, fully amortized mortgages. Another large group of respondents rejected the term “bubble,” which implies a subsequent crash they do not believe is imminent.
Among those who do believe we’re in a bubble, unaffordable prices in the absence of record-low mortgage rates is the chief rationale.
I mean we all know the housing market has been incredibly hot. Home values in April are up about 21% over last year, marking the 13th consecutive month of record-breaking annual home value appreciation. Affordability is greatly suffering too, as the astronomical rise in both home prices and rents over the last two years coincides with a more recent hike in mortgage rates.
However, an extremely hot market does not necessarily mean one in a bubble.
The largest portion of the panel (45%) expects the next U.S. recession to begin in 2023, which gathered more votes than 2022 (30%), 2024 (8%) or 2025 and beyond (17%).
Although the Great Recession was triggered by a housing crash, it’s a relative outlier in the grand history of recessions, which have often strengthened investment in housing due to its relative stability as an asset.
Despite a more than 100-basis point increase in mortgage rates since the previous survey just three months ago and the potential for higher rates in coming months, the panel’s expectations for 2022 home price appreciation still rose to 9.3% from 9.0% last quarter. This would be a significant step down from the 19.6% appreciation observed over the 2021 calendar year, but still high above long-term historical averages.
Looking forward, the most optimistic quartile of respondents predicted prices would rise 46.1% between now and the end of 2026, while the most conservative quartile predicted a cumulative rise of only 9.3% in that time. On average, respondents are forecasting a 26.4% cumulative rise by the end of 2026.