Real estate is a notoriously inefficient asset class. One symptom of market inefficiency is price inertia, a hallmark of housing markets. However, a comparison of actual U.S. home value changes in the recent past to expected changes for the near future (see below chart) suggests that as households ride the road to real estate recovery, they are sober and focused on what may lie ahead. According to the latest Pulsenomics survey of 10,000 heads of household across the U.S., when formulating their expectations about local home values for the coming year, the majority of consumers in fifteen of twenty major metropolitan areas studied are applying significant discounts to (or ignoring) the past year’s home price momentum.
The latest edition of the Zillow Housing Confidence Index (ZHCI) reveals that favorable assessments of prevailing real estate market conditions are more than offset by diminished consumer expectations for the future of housing, resulting in the first decline in overall housing confidence in the brief history of the index.