Altos Research Mike Simonsen Top of Mind Podcast Terry Loebs Pulsenomics

Forecasting Home Prices with Pulsenomics’ Terry Loebs

By Mike Simonsen on July 10, 2024


Stay up to date

Stay up to date

Back to main Blog
Mike Simonsen

Mike Simonsen is the founder and president of real estate analytics firm Altos Research, which has provided national and local real estate data to financial institutions, real estate professionals, and investors across the country for more than 15 years. An expert trendspotter, Mike uses Altos data to identify market shifts months before they hit the headlines.

In this episode of the Top of Mind podcast, Mike Simonsen sits down with Terry Loebs from Pulsenomics for a deep dive into forecasting home prices and the housing market. Terry has been at the forefront of measuring and projecting home prices for decades.

About Terry Loebs


Terry Loebs possesses more than 35 years of experience in the capital markets and in developing innovative data-driven products and services. He started his career on Wall Street evaluating and trading mortgage whole loans and servicing rights portfolios while earning his MBA at The New York University Stern School of Business.
After joining the Case Shiller Weiss, Inc. (CSW) senior management team in 1996, Terry led the commercial development of the Case-Shiller Indexes®, the subsequent effort to establish their world-wide reputation as a premier home price performance benchmark, and the launch of the first commercially successful automated valuation model (AVM) for both consumers and lenders.
After the 2002 acquisition of CSW by Fiserv, Terry managed the property data analytics team at the merged organization for three years before reuniting with Robert Shiller at MacroMarkets LLC, a financial product development company. There, Terry led the effort to develop new financial products and market infrastructure for U.S. home price risk management, including the CME Home Price Futures and Options market, and MacroShares®, the first stock exchange-traded home price-linked securities.
In 2011, Terry founded Pulsenomics®, an independent research and index product development firm that leverages expertise in data analytics, opinion research, financial markets, and economics to deliver unique insight and market intelligence to institutional clients, partners, and the public at large. Pulsenomics develops authoritative household surveys, manages expert panels, and creates innovative indexes to quantify and monitor attitudinal shifts pertinent to business strategy and economic health. Since 2010, Terry has managed an expert survey panel comprised of over 150 leading economists, investment strategists, portfolio managers, and real estate market analysts to produce the quarterly Home Price Expectations Survey™, which is currently sponsored by Fannie Mae. In 2014, Terry created The Housing Confidence Survey™ and The Housing Confidence Index™ to quantify, compare, and track key attitudes, expectations, and aspirations among homeowners and renters nationwide and within each of 25 large metro area housing markets. The data products created in connection with this research effort were most recently branded and distributed by Zillow and JPMorgan Chase.

For nearly a decade, Terry also served as lead independent trustee and eventually board chairman overseeing a multibillion-dollar ETF trust until its sale in early 2024.
googke podcast

Here’s a glimpse of what you’ll learn: 

  • Can people really forecast the housing market? Or home prices?
  • Can we better understand how housing wealth impacts the broader economy?
  • Why legacy macroeconomic confidence indicators don’t include housing and why that matters
  • What the Fannie Mae Home Price Expectations Survey tells us about the housing market for 2024 and beyond
  • How the optimistic forecasters are different from the pessimists right now
  • The surprising way that forecasters’ views for housing in 2024 are different than they have been for the last 15 years
  • Why home prices have “downward stickiness”
  • The most important leading indicators for forecasting future home prices
  • How forecasting long-term home prices is different from forecasting the next year and what to look for long term
  • The one housing market indicator that 84% of expert panelists agree on
  • Which risks are not yet priced into the housing market expectations
  • The big macro economic trends that are potentially the most impactful for the housing market in the coming years.

Resources mentioned in this episode

About Altos Research

The Top of Mind Podcast is produced by Altos Research.

Each week, Altos tracks every home for sale in the country - all the pricing, and all the changes in pricing - and synthesizes those analytics to make them available before becoming visible through traditional channels.

Schedule a demo to see Altos in action. You can also get a copy of our free eBook: How To Use Market Data to Build Your Real Estate Business.

Episode Transcript

Mike Simonsen (00:01):

Mike Simonson here. Thanks for joining me today. Welcome to the Top of Mind podcast. If you follow along with Altos Research, you're familiar with our weekly real estate market video series with the top of Mind podcast, we seek to add context to the discussion about what's happening in the market from leaders in the industry each week. Of course, Altos research tracks every home for sale in the country, all the pricing, all the supply and demand, all the changes in that data. And we make it available to you before you see it in the traditional channels. People desperately need to know what's happening in the housing market right now. So if you need to communicate about this market to your buyers and sellers, your clients, go to altos, book a free consult with our team and we can review your local market and teach you how to use market data in your business.

Alright, let's get to the show. Today we're talking to Terry Loeb from pulsen Nos about forecasting home prices in the housing market. Pulsen NOS runs a big survey for Fannie Mae, which collects all the smartest analysts in the US and they also include me in the residential real estate market. And I've actually known Terry for a long time since he ran a firm called Macro Markets where he worked alongside Nobel Laureate Robert Schiller of the Case Schiller Index. Terry has been at the forefront of measuring and projecting home prices for many years. So we're going to talk forecast today and how to do it and what we should know. So Terry, welcome to the show.

Terry Loebs (01:28):

Hey, thanks Mike. It's nice to be here.

Mike Simonsen (01:30):

Thanks. Great. So I had like to start with a little background. Tell us about you and omics, what you're working on and how we got here.

Terry Loebs (01:38):

Fair enough. So I have 35 years of experience in capital markets and developing data-driven products and services. But my interest in the housing market specifically real estate market trends, risk management, property valuation, all were sparked by my early career on Wall Street as a mortgage and servicing rights trader. And in that role, among other things, I had to price seasoned mortgage whole loans and servicing rights, the vast majority, which were nonconforming. And that entailed a lot of due diligence, including the assessment of the current value of the homes, securing each of those seasoned loans. So some important context, this was back in the mid eighties, early nineties, see the gray hair when automated valuation models did not exist. Even home price indexes were a foreign concept back then and the go-to gauge for home price changes was the NAR median. But the median isn't designed to be a reliable gauge of home price change because it reflects a different number and mix of homes from one period to the next.

So without or ABMS available to help estimate the current value of hundreds of properties securing a loan or a servicing portfolio. A trader like me typically had to resort to hiring appraisers and real estate brokers to evaluate what tended to be a relatively small random sample of the homes securing the mortgages in a portfolio. And as you can imagine, super time consuming, super expensive and inefficient, right? So guess around 1992 I discovered that a boutique real estate research company was producing something called the Case Schiller Index. And this was born from a white paper published by chip case in Bob Schiller back in 1983 that describes something called the repeat sales method. So for a seasoned mortgage portfolio trader like me, these indexes turned out to be a godsend at the time I started licensing the index in order to facilitate marketing to market all of the home values and LTV ratios on the loans and servicing that I was pricing and trading instead of just doing a small random sample. So it was efficient, it was objective, and it was vast and relatively inexpensive. And in doing so, I was able to perform more comprehensive collateral due diligence and ultimately make better informed pricing decisions.

Mike Simonsen (04:30):

So you've been working with the Case Schiller Index for 32 years?

Terry Loebs (04:35):

That's about right.

Mike Simonsen (04:37):

That's amazing.

Terry Loebs (04:39):

Yeah, so I was actually eventually recruited by K Schiller Weiss, formerly known as CSW, to lead their product and business development effort. And this included, among other things, expanding the scope of an applications for the K Shiller index database, launching the first commercially successful automated valuation model A VM and elevating the company's brands throughout the residential real estate ecosystem and eventually positioning the firm for sale to Fiserv in 2002. So that's what got me from New York Wall Street to Boston that moved to Kho Weiss. So I managed the property data analytics team at the merged organization at Fiserv for three years before reuniting with Bob Sill at Macro Markets, as you mentioned earlier, which was a financial product development company that he co-founded. And while there I led the effort to develop new financial products and market infrastructure for us home price risk management, including forging a strategic partnership with Standard and pos.

That's how, for example, the current CoreLogic s and p case, a home price index. I know it's a mouthful at its beginning. Through that relationship thereafter, establishing the CME Home price futures and options market and launching the first home price linked securities that were traded on a public stock exchange at the New York Stock Exchange, and they were called Housing Macro Shares. So these home price linked financial products were created, I should say were the initial catalyst really for creating the home price expectation survey that we're going to talk about a little bit more in a bit, which I launched back in 2010 with Bob Schiller. This was a period back in 2010 of tremendous anxiety in the housing market because of the volatility from the crash. And we believe that housing market stakeholders generally and investors specifically would value a collection of objective views from experts of where the housing market might be heading. And historically, and even to this day, most home price forecasts are not easily accessible. They tend to be short term and in duration and they're very diffuse. But again, more on that survey in a moment to complete my history here. So macro markets ultimately folded in 2011, and around that time I formed Pulse omics to provide product development consulting services, conduct opinion research of different types and produce innovative economic indexes and typically in partnership with institutional clients

Mike Simonsen (07:46):

Like Fannie Mae, like Fannie. So you have other ones, other macro indicator type things that you do there that, well,

Terry Loebs (07:54):

There's one in development that's been in development for several years now that's not strictly related to the housing market, it's more of a general economic indicator. It's related to broader confidence throughout the economy, various dimensions of that. It's based on the premise that the legacy economic confidence indicators, whether it's the University of Michigan or the conference board, those measures which had their origins in the mid 20th century probably can stand benefit from being improved. And that's the goal of that project, which is ongoing.

Mike Simonsen (08:35):

I look forward to that. We'll get you some publicity for it when that one launches. I identify with the premise there. It makes a lot of sense to me.

Terry Loebs (08:45):

Yeah, so there's been this, I think, ongoing debate about why is it that consumers continue to express a negative sentiment about the broader economy when unemployment is still near all time lows and the economy continues to grow, stock markets at record levels, et cetera and so forth. Part of my objective is to kind of solve that puzzle.

Mike Simonsen (09:13):

Oh, that will be terrific. Yeah, that feels really timely. It feels like there's a lot to learn there. And if we can indeed change a present new information for people, I think it could be powerful.

Terry Loebs (09:32):

Well, I'll give you an example again to tie it back to housing actually. So the legacy confidence indexes or consumer sentiment indexes are a function of five survey questions, none of which has anything to do with, for example, housing. If I'm a homeowner and I'm sitting on a very high amount of housing equity and knowing that home equity has significant wealth effects, I got to think that how a consumer perceives the value of their home and their financial wellbeing through the prism of their largest asset is going to influence the degree to which they're confident or not. And neither of those legacy indexes incorporates any feedback about how a consumer feels about their greatest asset. But anyway, that's a bit of a sidebar

Mike Simonsen (10:32):

That's really fascinating. And it's also very telling about maybe why we've avoided recession so far when everybody assumed the yield curve goes inverted and we assume where session's coming, but we've avoided it so far, and it may be it's because we've got, we feel really wealthy with our home equity. There could be those kinds of things in that mix.

Terry Loebs (10:57):

I think it's impossible to deny that that's at least a factor. Right.

Mike Simonsen (11:03):

Awesome stuff.

Terry Loebs (11:05):

And to kind of tie this back to other projects at least that have been exclusively focused on the housing market here at Pulse Genomics, about 10 years ago I created something called the housing Confidence survey and launched it in partnership with Zillow and then later JP Morgan Chase. And this was a massive consumer survey. This is in contrast to the home price expectation survey that Fannie Mae sponsors, which is a panel survey of experts, but this massive consumer survey which was administered to over 15,000 households, bi-annually, we collected the key attitudes, expectations and aspirations among homeowners, renters, nationwide and within each the 25 largest metro area housing markets. And I simultaneously developed and launched the housing confidence index and the transaction sentiment index to basically quantify and compare and track over time how all of those consumer housing attitudes basically trend over time. And together those two products comprised over 1000 or so individual data series.

Mike Simonsen (12:21):

That's amazing. So it comes to really the question of the day for us is can we forecast anything? Is it possible to actually accurately forecast in housing or in anywhere, but really let's talk housing

Terry Loebs (12:40):

Well without question. Yes. And here's how we do it,

Mike Simonsen (12:47):

The crystal ball, right?

Terry Loebs (12:53):

Yeah. So seriously, the short answer is no, it's not possible to know with a great degree of certainty what's going on in the future, what might transpire in the housing market specifically. With that said, historically forecasting home prices has been somewhat less of a humbling forecasting endeavor compared to other projections of, for example, stock prices or even the weather. And why is that? Well, it's simply because the housing market is fundamentally inefficient, which means there's a lot of inertia in home prices. This is something that Chip case wrote about quite a bit and demonstrated what he called the downward stickiness of home prices. So even when supply increases, prices don't immediately fall to clear the market. Rather, sellers, they have reservation prices below which they tend not to sell. They tend to anchor their expectations of their eventual sale price based on recent experience or their hopes and dreams, right?

So the implications of this price stickiness and more broadly housing market inefficiency is that the prevailing price trend should be a consideration whenever you're formulating a near term home price forecast. Right? And I emphasize near term for a reason because if you're formulating a longer term forecast for simplicity, let's say that means, I don't know any horizon beyond one year. You can't simply look at a price trend graph and extend the tangent of the slope with a straight line with a ruler. The real challenge in forecasting home prices is anticipating turning points, which is pretty difficult. Here's the good news, there's a fair amount of data out there that can provide clues about those turning points and the amount of that data that's become available in recent years. And alt doses is one of those sources are becoming more prolific. So building permits and starts inventory, new for sale, listing days on market, asking price reductions, pending sales, mortgage application, sale volume, foreclosure inventory, employment, real wage growth, mortgage rates, of course, population growth, rent prices.

Those are the sorts of things that I would say most forecasters will consider, if not all of them a good number of them. Now, longer term forecasts, you're talking about more, shall we say, macro variables. So I think you want to be mindful of demographic changes and shifts, population growth. That's something to keep a close eye on given the uncertainty over immigration policy in the coming several years. For example, regulation or deregulation for that matter, if somehow some way we can find more local governments to loosen up some of their zoning and building code regulations, that would be something to watch government debt, that's a big consideration. It's growing of course. We're what looking at roughly a trillion dollars in a deficit this year that's going to eclipse the budget for our military. That's going to impact interest rates if we can't manage our debt. And that's obviously going to affect mortgage rates. And the other thing that's I think very relevant to actually both short-term and long-term forecasts now are what's the outlook for property taxes and home insurance rates? Those are two very salient considerations for home price forecasts these days.

Mike Simonsen (17:23):

You bet. Okay. You covered a ton of ground. I think you said something that I find also in parallel in the Altos data. We have visibility about one year out and beyond. One year is it's like wards and pandemics and all kinds of macro things that we have no visibility on. That's not built into the data, but in the short term we can see the momentum, we can track price reductions, we can track new listings, volume and all of those things. But beyond that, it's really difficult. And it's interesting because in the omics survey for Fannie Mae that we're getting to here is you do ask about 1, 2, 3, I think five years out is what you're asking there in my, when I answer that one. So year one I've got altos data, year two through five I got nothing. So I have to come up with a hypothesis.

And you said something earlier that we touched on, which was the consumer momentum of equity and housing wealth that we were talking about looking for other ways and developing other ways to measure consumer sentiment and wealth impacts of home ownership, which is very strong coming out of the pandemic. But also we can see things lie. Credit card debt is now building and we are two years into higher mortgage rates. So there's four or 5 million a year of new homeowners who don't have such a great deal. So in my five-year view, I'm looking at each year subsequently weaker wealth effects of that existing market and therefore a slower and slower or even flatter negative home price appreciation over that period. We like all of the great impacts of the pandemic, all the wealth generation of the pandemic starts to evaporate a little more each year. So that's my hypothesis of build a framework for the future. It doesn't allow me to, it sort of assumes weak restricted immigration, continued elevated interest rates. As you point out we have elevated debt, those macro trends. And so that's the framework I decided on for doing my five-year outlook for that survey. What do you think?

Terry Loebs (20:23):

Yeah, well I think that approach is not terribly unusual. I mean you're clearly, unless you have a very well-developed and sophisticated econometric model, and most folks don't, some do, but even if you do, that's no guarantee. Of course, who could predict October 7th or that the Fed was going to boost the Fed funds rates 500 basis points in a 14 month span. So there are certain things that are just not forecastable, but you have to make an educated guess. And the point is we have people on the panel who are, shall I say, they have a well-informed view. They're not just taking a bunch of darts and throwing 'em at a dart board. They're expressing their well-informed views. And that's valuable. And it's important too because look, and at the end of the day, this is another thing that had me very interested in the US housing market from very early in my career. It's such a huge asset class. I mean currently it's just shy of $50 trillion. So what is the value of the aggregate housing stock in the US going to be beyond just one year from now has huge ramifications for policymaking and asset allocation and wealth management and risk management broadly speaking. So that's kind of the general mindset. But to go back to your approach to forecasting in the out years, I can just tell you a brief summary of the latest edition of our Fannie Mae home price expectation survey. So

Mike Simonsen (22:27):

This is published in Q2, just like late

Terry Loebs (22:31):

Q2. Yes. And our Q2 survey was fielded in mid-May just to provide some additional context for your viewers. And the average projection for nationwide home price appreciation for this calendar year came in at 4.3% and we had 107 respondents this go round. So that's a bit of a come down from last year, but it's still all things considered a pretty healthy rate of appreciation. Now for 2025 and 2026, the appreciation is expected to diminish somewhat to the three point a quarter, three and a half percent range before bumping back up to slightly above 4% in 2027 and 2028. Now with all of that said, it's worth noting the following about these projections and not just those that I just specified, but the output from this sort of survey broadly speaking. And that is that these home price projections are nominal price increases. So they're not adjusted for expected inflation. And more important I think is that these are kind of the headline data. They're the panel wide averages that get reported, but those averages, it's not the same as a consensus. Okay. Because the headline average happens to mask some significant dispersion among all of our panelists.

Mike Simonsen (24:07):


Terry Loebs (24:07):

Tell me about that. So here's an example. A few of our panelists are currently calling for more than 9% appreciation nationwide in 2024 for the calendar year, while some others expect prices to fall by about 2%. So I mean that's pretty wide range there. And the other thing I like to do to keep things in perspective is compare for example, how the mean of the most optimistic and most pessimistic quartiles of our panel survey respondents are projecting prices and consider the spread between their respective five-year cumulative forecasts. So for example, in our most recent survey, the mean of the most optimistic quartile of panelists projects a 33% cumulative home price appreciation rate through 2028. So that's like an average annual increase over the next five years of about 6% per year. Now the mean of the most pessimistic quartile projected only a 9% rate of home price appreciation over the same five year period. And that's an average of under 2%. And that's nominal. So the pessimistic quartile, if you adjust their nominal 2% average expectations for expected CPI inflation, they're basically expecting flat to arguably somewhat negative appreciation,

Mike Simonsen (25:57):

Lose wealth in your home over the next five years relative to inflation is the most pessimistic quartile. This is like 25 people out of this survey. So there are 25 well-informed folks who are projecting that you'll essentially lose wealth relative to inflation over the next five years in your home and Americans will, which that sounds pretty significant. You said you've been doing this survey for 15 years, right?

Terry Loebs (26:31):

We're in our 15th year, that's right. And we've conducted it every quarter without interruption and in every single edition we've gotten over 100 expert respondents.

Mike Simonsen (26:46):

And how does that optimistic and pessimistic view, let's start with the pessimistic view, which is kind of a headline here. How are the pessimists more pessimistic now or are they always this pessimistic over time?

Terry Loebs (27:05):

I think it'd be very difficult to say that they're always difficult, they're always pessimistic over time, Mike. I think it's just the market volatility over the last couple of years. Veers has created again such a degree of uncertainty, which basically creates a widening of plausible scenarios and there's just less consensus. I've seen a couple of panelists who early on following the recovery in the early teens who were basically super bearish, basically predicting a repeat of the crash or a reversion to a crash who are now kind of predicting if not double digits, something well north of the panel wide average. So I think it's hard to

Mike Simonsen (28:10):

Say. Yeah, so there's always pessimists, there's always people who see the potential for a crash and there's always a potential for a crash and maybe they have their eye on some macro thing that is 60% likely that doesn't happen or whatever the thing is the wrong side of maybe on that kind of forecast as they call it. But so there's always pessimists and there's always folks who are expecting a crash, and I've seen 'em in the survey now. There are folks who are still expecting in six months to go from positive five 6% home price gains to negative too. That's a big change in the second six months of the year, but there's still people in that survey who are expecting that. What I'm curious about is Ian, like 2015, were in the middle of a 15 year or 12 year boom market. Were generally, so you said there's less spread, so there's fewer scenarios on the downside. So were the pessimists slightly more optimistic over the last decade and that they've sort of turned more pessimistic now?

Terry Loebs (29:27):

Yes. I would say in general that's a fair synopsis, obviously with some exceptions, but generally that's a fair's

Mike Simonsen (29:33):

Fair. Okay. So one of the things that I think a forecast, the reason we do this work is that it essentially, while any one forecast is right or wrong, the fact is that there are more downside risk scenarios right now than we've seen in 15 years

Terry Loebs (29:58):

And is geopolitical risks, market risks. But the bottom line is we are in uncharted waters. The housing market arguably has been dysfunctional and a hot mess ever since the great financial crisis. And I think there was this general assumption that normal market dynamics would eventually return in the last couple of years. But obviously after covid kicked in, here we go again, another anomalous event that just wreaks havoc with historical patterns in data and financial models. And again, that contributes to this volatility and the spread that we see in people's perspectives on what the market holds.

Mike Simonsen (31:05):

That's really fascinating of the view. Tell me what you think of this. I'm of the view that higher rates for longer is what gets us back into a normalized world. So the ultra low interest rates of the last decade is what created the craziness in the market, the lock-in effect of people having lifetime cheapest money in the history of mankind kind of financing on their homes. And so the longer we stay with rates in the sevens or do another year or two or three, we get more people, we get better turnover, we better a resell inventory, and therefore we have normalizing price appreciation. We have greater supply for the existing buyers of the view that higher rates for longer is how we get back to some kind of normalization. Do you see that anywhere in the data?

Terry Loebs (32:11):

I wouldn't say I see it in the data per se, but I think that mindset, there's some good logic in there. I mean I believe that most people, our panelists specifically are not counting on significant reductions in interest rates in the near term. Obviously the fed's now looking at maybe one cut in Q4 when they started the year publicly proclaiming there'd be at least three in all likelihood. And so I think people and forecasters believe that there is this kind of higher for longer or we're not going back to sub, let's say even 5% mortgage rates anytime soon and that life goes on and people eventually are going to have to unlock perhaps begrudgingly just because of life, all of the attendees of life that can spur home transactions or people who might not be inclined to transact otherwise to actually buy or sell a house. It's what diapers, new baby coming on board, devotion, people getting married to one another, forming new households, the adverse of that divorce or if you're not married, being dumped.

Mike Simonsen (34:06):

The relocation. Yeah, yeah, the Ds, the disease

Terry Loebs (34:12):

And the death disability, all these things can obviously affect and ultimately will affect housing supply.

Mike Simonsen (34:25):

Right. Okay. So are there other headlines in the current Fannie Mae release, the Omics Forecast survey? Are there other headlines? So I thought it was really interesting that we have a bigger dispersion of high and lows. We have four and or 4.3% is a projection. My projection I think is lower than that. I think it's upper threes for the threes somewhere for the year is what I came in. And based on the Altos data forecasting, for me it's tricky. I could forecast the Altos number, but then the Altos number has to forecast the Fannie Mae home price appreciation. So I have to do, there's some trickiness in there, but then so are there other takeaways from the most recent survey?

Terry Loebs (35:21):

Yeah, so again, for your viewers and listeners who are not familiar with the home price expectation survey, what we actually do is ask each of our panelists to project the home price appreciation rate for each of the coming five calendar years. And that's kind of the standard component of the survey. But in addition to that, we ask the survey to weigh in on certain hot topics in real estate and the mortgage finance arenas. And more often than not, we'll see a range of views on a particular topic, but whenever there's a clear consensus, I think it's worth noting. So for example, in our latest survey, we asked our panel whether or not the recent year over year increases in newly listed existing homes are likely to continue through the remainder of the year. And I was surprised that there was this huge majority of whopping 84% of experts said that that continued year over year increases in new listings are likely this year.

So this feedback, if it wasn't the spark of the recent narrative that the lock-in effect will soon fade. I think it certainly reinforced the notion that sellers and prospective home buyers are beginning to acclimate to a higher mortgage rate environment. Something we were just talking about contrarily, I guess the same set of special topics questions included feedback that, what was it? I think only about one in 10 of our experts believes that the rate of home price appreciation is going to meaningfully decrease any time soon, even if the lock in effect fades and inventory gradually builds.

Mike Simonsen (37:31):

So only one in 10 think that we're going to have meaningful decline in home prices

Terry Loebs (37:39):

To be clear, meaningful decline in the home price appreciation rate. So not outright declines, but the rate of increase

Mike Simonsen (37:47):

The rate. So like a disinflation. Right,

Terry Loebs (37:53):


Mike Simonsen (37:53):

Okay. Okay. How does that jive with the bottom quartile, the pessimistic quartile that is negative?

Terry Loebs (38:02):

How does it jive with the bottom

Mike Simonsen (38:04):

Core? So the most pessimistic quartile of folks, the most pessimist 25 people I think said have a negative 2%. Is that 2% for the year or is that for the five year? No, that's a 2% for the year.

Terry Loebs (38:18):

So I didn't do a cross tab analysis on the individual home price. I could have,

Mike Simonsen (38:28):

I just

Terry Loebs (38:29):

Ran out of time. But it's a fair question. I would suspect, Mike, that there was a pretty meaningful between the more pessimistic forecasters regarding home price appreciation rate and those who perhaps think that home price appreciation is actually going to decrease as the lock and effect fades.

Mike Simonsen (38:57):

Got it. Okay. So cool. So anything else from this survey? The takeaways that we should, since we're talking about this one most recent,

Terry Loebs (39:08):

I guess mean we asked a fairly common couple of questions. So for example, we asked our panelists to weigh in with an update on their expectations for where the 30 year fixed rate mortgage rate is going to be at year end and the median expectation came in at 6.5%. So I guess that's encouraging since we're still stuck around seven, but that's 50 basis points higher from the median projection that the panelists provided in our Q1 survey.

Mike Simonsen (39:49):

So people are now expecting higher rates than one quarter later. They're expecting higher rates,

Terry Loebs (39:56):

Exactly about 50 basis points. And also this is pretty interesting too, they also said that if rates stay stuck at or around 7% or higher, most I should say only one in 10 of our experts believe that housing permits and starts have a chance of increasing. So again, hopefully their predictions, the fed if they cut at least once by the end of the year will get down closer to 6.5% and housing permits and starts won't be meaningfully negatively impacted.

Mike Simonsen (40:43):

Right. And we're recording this in June at the end of June. I think permits and starts just came out today. The made number came out today and it was obviously muted. So only one in 10 think we're likely to see that turn up this year. Yeah. Okay. There's some other things about forecasting that I'm interested in. So for example, you did with macro markets, you did futures and options on the housing market. One of the characteristics of doing markets like that is that they may have predictive value like prediction markets. And are you able to look at things like any predictive value that you might have seen from those macro shares or compared to the predictive value of the experts? Do you have ability to go when you want to understand the next five years, what's the way to go, what's the right way to go understand the future?

Terry Loebs (41:53):

I wish there was, and I've certainly not given up hope on liquid tradable markets for home price risk. And although macro shares unfortunately had a very short life for a variety of reasons, including lingering fallout from the financial crisis, the see me futures and options still live on granted, there's really not much liquidity there. John Dolan, who's a longstanding member of our panel, has just done an amazing job keeping that market going as a market maker and keeping the followers of it up to date. But in a perfect world, more liquid markets for home prices, whether it's futures, options, cash prices, stock exchange traded price, home price, linked securities, whatever it might be. I mean, ultimately when people have a financial stake in the direction of home prices and there's a liquid market for that, those are going to be the markets that people come to rely on and look to.

Mike Simonsen (43:16):

When we're talking about specific forecasting, one of the things I remember is at the end of 22, we had our first 10 months of dramatically rising rates. We had inventory of homes, unsold grew dramatically for the first time in basically a decade. We had price reductions up, we could see softening in future prices. So end of 22, December 22nd, 2023 looked pretty dire from home prices, but 23 ended up 6% higher than trend for home price appreciation than most years. How did the survey look at the end of 22?

Terry Loebs (44:12):

Well, again, looking at the mean projections at the end of 22, it as you suggest, it looked pretty ugly. So let's see, in late 2022, our Q4 2022, a panel wide average prediction for 2023 home prices was a decline of about one and a half percent, one and a half percent depreciation. But as you said, actuals ended up coming in depending on your kind of index benchmark, somewhere between four and a half and six point half percent. So some did predict an up year at the end of 2022, but most did not. There's no doubt about that. And look, again, it kind of goes back to some of these unprecedented phenomenon in the market that nobody could have guessed on the panel off the panel anywhere, who could have guessed that through July of 2023 that the Fed would increase rates by a total of five percentage points, which importantly was not just an increase of five percentage points, but it was the sharpest increase. In other words, the rate at which those 500 basis points were added onto Fed funds and transferred through to the 10 year and mortgage rates was unprecedented and got the lockin effect. So the lockin effect is basically proved to be far more powerful. First of all, I don't think the majority of folks, again, whether on our panel or not, were terribly mindful of the lock-in effect until we saw that huge spike up.

And it certainly proved to be longer lasting and more powerful than anyone expected.

Mike Simonsen (46:32):

And for me, there was the signal that I, in retrospect should have paid more attention to was we could see the lock-in effect starting July 8th, 2022, and we could see the new listings volume drop off a cliff after the first week or last week of June. And at the time, I didn't realize the significance of that, and we could see it because we could see inventory climbing of course, but what anybody who was selling in 22 pulled it forward to the first half of the year and then they stopped. And so what that said was we could see, wow, there's actually an upper limit to how much inventory is going to gain, which then we saw in 23 we had limited sellers, we had more buyers and sellers, and therefore we had home price appreciation through the year. And I had the data and noticed, but it didn't really speak to me about what it was telling me about the future. And so I was expecting flat to down prices for 23.

And so was surprised when that really started pushing higher, which was we could start seeing the change in actually February in the alto state of February 23 where there was fewer price reductions because there were people buying homes. And so we could start seeing those leading indicators kicking in. So it was really fascinating. And the challenge of course is that that pattern happens only once ever. And so again, I don't get to use that wisdom. Well, let's hope, right? Yeah, I don't get to use that wisdom next time, but I do. I am trying to keep my eyes out. And it's funny because over the years I've not built a forecasting muscle for myself because mostly we've just been providing the data to the forecasters and letting other folks do it. But over the last few years I've been doing more and more of that work myself and saying, well, I've got the data, lemme just go do it. And so it's fun to be able to be part of the survey. Now, you talked a little bit about the fast changing mortgage rates and nobody expected the dramatic changes in rates.

And you mentioned earlier the housing market has some downside, stickiness has some momentum and is therefore forecastable and is also in my mind the transaction time is so long we can use the asking prices and the volume. There's a lot of signal that happens way before the sale happens that we can use in forecasting home prices. The mortgage markets though maybe the least predictable thing in the world, like actual interest rate. In your experience, is there anyone or is there any framework that is usable? Because in some ways, predicting the housing market is predicting interest rates and if rates go into the fours, I can tell you exactly what's going to happen to home prices. So I wonder if there's, is there any framework for forecasting interest rates, mortgage rates in particular?

Terry Loebs (50:22):

Wow, the short answer is no, at least reliably in times like these. So I mean, if there's one thing that we've learned, Mike in the past couple of years, and this relates to projecting interest rates broadly, mortgage rates specifically one inflation in the wake of unprecedented fiscal and monetary stimulus is sticky and it is not transitory. And the other thing I think that's important to bear in mind as one goes about formulating an interest rate forecast, at least in the near term, is the Fed is determined to hit its inflation target and the old saying one shouldn't fight the Fed. So again, it's this extraordinary fiscal and monetary policy mix that's generated this market volatility and unintended consequences. And as I mentioned before, these things have wreaked havoc with legacy econometric models that have been trained on past historical data relationships in times like these, they just don't hold.

Mike Simonsen (51:47):

That's fascinating. That's fascinating. I always like to ask my guests about their views of the longer term future. And so if I ask Terry to go into forecasting mode and are there trends in housing, in mortgages in the macro environment that you think are worthwhile paying attention to that you think are maybe getting under less attention than they should?

Terry Loebs (52:20):

Yeah, yes and no. I'm not sure these things get less attention than they should, but again, to the things I would consider important in formulating a view on longer term home price trends are obviously economic growth prospects. Again, population growth I think is a significant factor we're going to have to manage in the next couple of years. Again, that relates to immigration policy, it relates to the homelessness crisis, not to get too far afield, keeping tabs on demographic changes and shifts in housing preferences. The degree to which households prefer renting versus owning are important to consider. I mentioned before just what's going on with the country's balance sheet and growing debt and deficits and the impact that those potentially have on keeping interest rates higher for much, much longer. And again, I think about property taxes and home insurance rates, especially in coastal markets that have been affected by all of these, whether weather events,

Mike Simonsen (54:05):

And we didn't even talk about that. We can absolutely see the Florida markets really for 2024, the strongest bear markets in housing, and it's directly related to things like insurance costs and

Terry Loebs (54:25):

And also Mike regulations that again relate to maybe older construction and also coastal construction like consider Florida, there's a new state law there. And that state law basically is requiring the owners of older buildings to meet new and much, much more strict safety standards. I mean, that's pushing up condo owners association fees and their maintenance expenses, and that's significant.

Mike Simonsen (54:58):

It is. And we can really see it in the data. It'd be really fascinating. I think Florida was underpriced climate risk for a bunch of years and is now starting to normalize. And homeowners there are definitely feeling it. Terry, we blew through an hour. You didn't think it was possible, but we've blew through an hour really quick. I appreciate all your insight on forecasting and I am working to publish more, do some more work for our readers about what we can see in the future. So I appreciate your insight about doing great forecasting. So omics and the Fannie Mae Home Price Expectations report comes out quarterly. Where should people go to find it?

Terry Loebs (55:46):

You can go to fannie or you can go to

Mike Simonsen (55:50):

And it comes out quarterly and it just came out a couple of weeks ago, I think for this quarter. And it's an excellent insight about where 107, I think you said, experts think the market's going to go. And while they're not right, always necessarily, there's some real trends in there. And for example, that the pessimists, the bottom quartile pessimists are more pessimistic than they've been in a long time right now. And so there's a wider spread of what might happen in the coming years. That's a really fascinating trend that we're facing we're looking at right now. Terry Loeb, thank you so much for your time today. Really insightful. It was exactly what I wanted to accomplish. Everybody, Terry Loeb's omics and the Fannie Mae Home Price Expectations report. If you enjoy the top of Mind podcast, we always appreciate a review, some stars and your favorite podcast app. So that helps other people find us and we will be back next week with another great interview. Thanks, Mike. Thanks Terry

Get the latest articles directly in your inbox, stay up to date