Americans should expect to see home prices fall for a three-year period starting in 2017, according to a new projection by Bank of America analyst Chris Flanagan. That’s because of a lack of earning gains in recent years, he says.
“We do not see income growing fast enough to keep up with the past few years of rapid increases in home prices,” he explains in his analysis.
The projection isn’t necessarily cause for alarm; the property declines will be “modest,” according to Flanagan. He forecasts that home values will go up by 3.7% in 2015 and 0.8% in 2016, then decline by 1.7% in 2017, 2.1% in 2018 and 0.8% in 2019.
Bloomberg Business was the first to report on Flanagan’s projections June 1.
Overall Market Projections
Some investors may take Flanagan’s projections with a grain of salt, as they diverge substantially from the forecasts of other market observers. JP Morgan Chase, for example, put out a report last week estimating that home values will rise by 2.4% in 2017 and 2.3% in 2018.
But lending credence to Flanagan’s figures are the fact that he issued what Bloomberg called in hindsight “prescient warnings” over the effects the subprime mortgage market and other factors would have in 2007.
The slightly less optimistic projection may also serve as a warning to the current booming home remodeling industry, which is set this year to reach its highest level since the burst of the housing bubble.
Driving up resale value isn’t the primary goal for all groups who are currently remodeling (older Americans are remodeling in order to make their houses friendlier for aging in place, for example). But those who are undertaking expensive projects (even a “minor” kitchen remodel costs $19,226 according to the 2015 Cost vs. Value Report) expecting to see a positive return on investment may need to look more carefully at their individual market conditions before moving forward.