US Home Prices to Rise as Mortgage Holders Stay Put: Reuters

According to a recent poll conducted by Reuters, property experts predict a steady rise in U.S. home prices over the next few years. This projection is based on expectations of modest interest rate cuts by the Federal Reserve and a reluctance among existing homeowners to sell, holding onto favorable mortgage rates obtained during the pandemic.

Despite a surge of around 50% in average house prices during the pandemic and a subsequent new record last year, the market experienced a brief correction but remained resilient. The poll suggests that after a 6% increase last year, average home prices are expected to grow by 3.3% in 2024, followed by approximately 3.0% in both 2025 and 2026.

Crystal Sunbury, a senior real estate analyst at RSM, highlighted that the record low levels of resale inventory have contributed significantly to the resilience of home prices. As mortgage rates stabilize and reach a more terminal rate over the next year, small gains in home prices are expected.

The 30-year fixed mortgage rate, which recently exceeded 7.0% for the first time since December, is forecasted to average 6.50% in 2024, with modest declines to 5.98% in 2025 and 5.75% in 2026. This could potentially lead to more resale units entering the market, but a substantial increase in resale inventory is not expected, as the majority of current homeowners are estimated to have mortgages under 5% and are unlikely to trade up for a higher rate.

Moreover, the housing market is grappling with issues of affordability, particularly for newly-formed families. Previously considered entry-level buyers for builders, young families now face significant challenges in purchasing their first home, even in the resale market. This affordability crisis is exacerbated by the gap between demand for affordable homes and the supply available, which is expected to either remain the same or widen over the next 2-3 years according to 15 of 23 strategists surveyed.