US home prices to rise 5% this year, more modestly next: Reuters poll
2024.05.30 10:18
By Indradip Ghosh and Sarupya Ganguly
BENGALURU (Reuters) – U.S. home prices will rise a bit faster this year than previously expected due to limited available supply, according to analysts polled by Reuters, who saw affordable properties coming to market remaining below levels of demand in coming years.
Interest-rate sensitive house prices, which surged 45% during the pandemic, have risen around 8% since early 2023, wiping out a 5% dip in the second half of 2022, caused in part by the 525 basis points of rate rises from the U.S. Federal Reserve.
Despite elevated mortgage rates – and expectations among forecasters that the first cut will come in September at the earliest, and priced for November by markets – home prices were expected to continue their upward march.
Average prices defied predictions of a decline last year, rising nearly 6%, and are expected to increase another 5% in 2024, according to the median of forecasts from 28 analysts in a Reuters poll taken between May 9 and 30. Forecasts were based on the S&P CoreLogic Case-Shiller composite index of 20 metropolitan areas.
That was an upgrade from 3.3% predicted three months ago and higher than the average consumer price inflation forecast for this year of 3.2% in a separate Reuters survey.
But home price rises are expected to slow to 3.3% in 2025 and 3.4% in 2026, the latest survey showed, despite more than 200 basis points of interest-rate cuts expected by then.
Mortgage rates are forecast to dip a little more than a full percentage point from the current 7% but to stay well above the rates many existing homeowners pay on standard 30-year deals.
“As of now, roughly half of the U.S. has locked in fixed-mortgage rates of under 4%, and that should keep supply stable … so housing affordability is still tough,” said John LaForge, head of real asset strategy at Wells Fargo Investment Institute.
“Your best bet for a trigger that might help affordability over the next year is interest rates. But frankly, it doesn’t look like we’re getting those four to five or six rate cuts from the Fed most economists thought earlier.”
MORTGAGE RATES TO REMAIN HIGH
The interest rate on the most popular U.S. home loan – the 30-year fixed mortgage – is currently only 90 basis points lower than its 23-year peak of 7.9%. It was forecast to average 6.88% this year, nearly 40 basis points higher than in the March survey.
It is then expected to decline only modestly to average 6.27% in 2025 and 5.97% in 2026.
“As homeowners slowly acclimatize to higher mortgage rates, more affordable second-hand home supply will come on to the market. But we anticipate this will only be a trickle rather than a flood,” said Thomas Ryan, U.S. property economist at Capital Economics.
An overwhelming 92% majority of analysts, or 22 of 24, said the pace of supply of affordable homes would fall short or far short of demand over the coming two to three years.
Overall supply has remained below the 1.8 million units reported for April 2019, months before the pandemic.
Although housing inventory rose 9% to 1.21 million units last month, its highest since October 2021, it is hardly a drop in the ocean of demand for homes in a country where an average house costs about seven times the median salary.
Existing home sales, comprising more than 90% of total sales, were seen rising only to a 4.3 million unit annualized rate by year-end, from 4.1 million currently, considerably less than over 6 million during the pandemic.
(For other stories from the Reuters quarterly housing market polls:)
