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Bubble Fears Emerge As Experts Predict Home Value Appreciation Will Remain Above 5 Percent This Year

5.4 Percent Expected Annual Gain In Home Values Represents Modest Bump From March; Almost All Panelists Say Current Fed Policy Has At Least Some Risk of Re-inflating Housing Bubble

May 7, 2013

SEATTLE, May 7, 2013 /PRNewswire/ -- More than 100 forecasters said they expect the Zillow® Home Value Index (ZHVI)[i] to end 2013 up an average of 5.4 percent year-over-year, and most expressed some fears the Federal Reserve could be inflating a new housing bubble, according to the latest Zillow Home Price Expectations Survey.

The survey of 105 economists, real estate experts and investment and market strategists was sponsored by leading real estate information marketplace Zillow, Inc. (NASDAQ: Z) and is conducted quarterly by Pulsenomics LLC. Panelists said they expected median U.S. home values to rise to $165,280, on average, by the end of 2013. At the end of 2012, the U.S. Zillow Home Value Index stood at $156,800.

In the last survey, conducted in late February and early March, respondents said they expected average home value growth of just 4.6 percent in 2013. Looking forward, respondents predicted average home value appreciation of 4.4 percent in 2014, up from prior expectations of 4.2 percent.

But while panelists were more bullish on near-term home value appreciation this year and into 2014, their expectations for nationwide home value growth in 2015, 2016 and 2017 were slightly more pessimistic than in prior surveys. On average, panelists said they expect annual home value growth between 3.5 percent and 3.7 percent from 2015 through 2017, down modestly from previously expressed expectations in the 3.6 percent to 3.8 percent range. Cumulatively, survey respondents predicted home values to rise 22.3 percent, on average, through 2017.

"The panel's expectations of near-term home value appreciation remaining above historic norms are consistent with a market struggling to satisfy strong demand from buyers attracted by rock-bottom interest rates and improving economic conditions," said Zillow Chief Economist Dr. Stan Humphries. "But looking further out, that appreciation will have to moderate as interest rates rise, or else homes that seem affordable today – despite rapidly rising values – are going to look very expensive relative to people's incomes as it gets more costly to finance a home. How the Federal Reserve handles the eventual winding down of its policy of quantitative easing will be critical in determining if the current period of rapid appreciation is a benign bounce off the bottom, or a more dangerous bubble being re-inflated."

The most optimistic quartile[ii] of panelists predicted a 6.6 percent annual increase in home values in 2013, on average, while the most pessimistic quartile[iii] predicted an average increase of 4.2 percent. Expectations among both the optimists and pessimists were up from prior predictions of 6.1 percent and 3 percent, respectively. Expectations for cumulative home value changes through 2017 ranged from 32.8 percent, on average, among the most optimistic quartile to 12.3 percent among the most pessimistic.

Fears Of A New Housing Bubble Emerge

The latest Zillow Home Price Expectations Survey asked the panel if the Federal Reserve's current monetary policy aimed at keeping mortgage interest rates near historic lows risked inflating a new housing bubble. Just 4 percent of respondents said they saw no risk of a new bubble; 48 percent said they saw a little risk; and another 48 percent said there was a moderate to high risk of a new housing bubble forming as a result of current policies.

Under the Dodd-Frank financial reform legislation, banking regulators were asked to define a "qualified residential mortgage" (QRM) that would make that loan exempt from certain risk retention rules also adopted under Dodd-Frank. The panel was also asked if this QRM definition should include a minimum down payment. Among the respondents, most said the QRM should include a minimum down payment requirement.

"Contrary to concerns expressed by certain policymakers, only a small minority of our expert panelists believe that including a minimum down payment requirement in QRM would pose a threat to the housing recovery. The vast majority of respondents – 81 percent – believe that establishing a minimum down payment is a good idea and would ultimately foster a healthier housing market," said Pulsenomics founder, Terry Loebs. "This consensus is consistent with the spirit of the provisional QRM rule drafted by financial regulators, although only about one-third of our panel favors a minimum down payment standard of 20 percent or more."

Additional details regarding this portion of the survey are available at www.pulsenomics.com.

This is the 18th edition of the Home Price Expectations Survey. It was conducted from April 23, 2013 through May 2, 2013 by Pulsenomics LLC on behalf of Zillow, Inc.

For full survey results and graphics, please visit Zillow Real Estate Research or www.pulsenomics.com.

About Zillow:
Zillow, Inc. (NASDAQ: Z) operates the largest home-related marketplaces on mobile and the Web, with a complementary portfolio of brands and products that help people find vital information about homes, and connect with the best local professionals. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow's Chief Economist Dr. Stan Humphries. Dr. Humphries and his team of economists and data analysts produce extensive housing data and research covering more than 350 markets at Zillow Real Estate Research. Zillow also sponsors the quarterly Zillow Home Price Expectations Survey, which asks more than 100 leading economists, real estate experts and investment and market strategists to predict the path of the Zillow Home Value Index over the next five years. The Zillow, Inc. portfolio includes Zillow.com®, Zillow Mobile, Zillow Mortgage MarketplaceZillow Rentals, Zillow Digs™, Postlets®, Diverse Solutions®, Buyfolio™, Mortech™ and HotPads™. The company is headquartered in Seattle.

Zillow.com, Zillow, Zestimate, Postlets and Diverse Solutions are registered trademarks of Zillow, Inc. Buyfolio, Mortech, HotPads and Digs are trademarks of Zillow, Inc.

About Pulsenomics:
Pulsenomics LLC is an independent research and consulting firm that specializes in data analytics, new product and index development for institutional clients in the financial and real estate arenas. Pulsenomics also designs and manages expert surveys and consumer polls to identify trends and expectations that are relevant to effective business management and monitoring economic health.

[i] The Zillow Home Value Index is the median estimated home value for a given geographic area on a given day and includes the value of all single-family residences, condominiums and cooperatives, regardless of whether they sold within a given period. It is expressed in dollars, and seasonally adjusted.

[ii] Based on the 25 percent most optimistic panelists in terms of cumulative home price change through 2017.

[iii] Based on the 25 percent most pessimistic panelists in terms of cumulative home price change through 2017.

SOURCE Zillow, Inc.

For further information: Cory Hopkins, Zillow, +1-206-757-2701, press@zillow.com