Poll: US home prices to grind higher as cheap mortgage holders stay put

Applied Energetics

01/03/2024 13:56

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              cpurl://apps.cp./cms/?pageId=house-poll poll data
    

  
    By Prerana Bhat and Indradip Ghosh
       BENGALURU, March 1 (Reuters) - U.S. home prices will
rise steadily over the next few years amid prospects for modest
interest rate cuts by the Federal Reserve and as many existing
homeowners keep their doors closed to selling, according to
property experts polled by Reuters. 
    As aggressive Fed rate hikes have sharply pushed up the cost
of standard 30-year mortgages to more than 7%, existing
homeowners have held on to rock-bottom rates from the pandemic,
some below 3%, limiting the supply of homes for sale.
    That, combined with relentless demand for a place to live
and a strong economy, cushioned a brief correction in the
market. Average house prices soared around 50% during the
pandemic and again hit a new record last year.
    After rising about 6% last year, defying previous
expectations of declines, average home prices are forecast to
grow 3.3% this year and around 3.0% in 2025 and 2026, according
to the median of 28 analysts in a Feb. 15-March 1 Reuters poll.
    Forecasts were based on the S&P CoreLogic Case-Shiller
composite index of 20 metropolitan areas.
    That outlook was upgraded very slightly from three months
ago, modestly outpacing expectations of headline inflation, seen
averaging 2.7% and 2.3% this year and next, respectively,
according to a separate Reuters survey. 
    "Despite rapidly climbing mortgage rates in 2023, record low
levels of resale inventory have contributed to home prices'
resiliency... We expect to see some small gains in home prices
as mortgage rates stabilize and reach a more terminal rate over
the next year," said Crystal Sunbury, senior real estate analyst
at RSM, a U.S.-based consulting firm.
    The 30-year fixed mortgage rate, which broke above 7.0%
recently for the first time since December, was expected to
average 6.50% this year and decline only modestly to 5.98% in
2025 and 5.75% in 2026, according to median forecasts in the
poll.  
    "We may see more resale units come into the market, as
mortgage rates ease, but resale inventory is not expected to
climb substantially, as over 80% of current homeowners are
estimated to have mortgages under 5% and the vast majority will
not be willing to trade up their mortgage for a higher rate,"
Sunbury added.
    Average mortgage rate forecasts were broadly upgraded from a
November poll and reflect retreating expectations for the number
of Fed rate cuts expected later this year, currently due to
start in June.
    Shelter costs as a category, which is dominated by rental
costs rather than home prices, comprise around one-third of the
consumer price index. Although the Fed targets the personal
consumption expenditure index - which is less driven by housing
- higher house prices could delay Fed rate cuts.
    On the prediction mortgage rates would decline only
slightly, existing home sales, which comprise about 90% of total
sales, were seen around current levels of 4 million units this
year, much less than over 6 million during the pandemic. 
    A persistent shortage of previously owned homes pushes
buyers into the new home and rental market, adding pressure on
already lagging constructions and sales.
    Responding to a separate question, 22 strategists were
evenly split on whether the ratio of homeowners to renters would
increase or decrease. 
    A further 15 of 23 said the gap between demand for
affordable homes and supply of them would stay around the same
or widen over the next 2-3 years.
    "Overall, the main issue in the housing market is
affordability, and mortgage rates are not going to fall enough
to make a dent," said Brad Hunter of consultancy Hunter Housing
Economics.
    "Newly-formed families used to be 'entry level' for the
builders. Not anymore. Young families have essentially no hope
of buying a new home for their first home. Even on the resale
market, they will continue to struggle just to become homeowners
at all." 
    
    (For other stories from the Reuters quarterly housing market
polls:  urn:newsml:reuters.com:*:nL3N3F52M1)

 (Reporting by Prerana Bhat and Indradip Ghosh; Polling by
Maneesh Kumar; Editing by Ross Finley and Hugh Lawson)
 ((Prerana.Bhat@thomsonreuters.com;))