Home prices are poised to jump another 5% this year as the market is even tighter than it was in 2023.
According to Capital Economics, home prices may continue to rise this year, as the housing market is not as favorable for prospective buyers as it may seem.
Despite a recent increase in housing inventory, with new listings up 16% compared to last year, the firm believes that home prices are unlikely to decrease or slow their pace of increase. They forecast another 5% surge in home prices this year.
Although there are more homes hitting the market, active listings are still about 400,000 below "normal" levels, according to Capital Economics estimates. This indicates that there is still an imbalance between supply and demand, which continues to impact affordability.
Mortgage rates remain high, with the 30-year fixed rate at 6.8% last week, according to Freddie Mac data. High rates have discouraged existing homeowners from listing their properties for sale, and this trend is expected to continue. Capital Economics predicts that mortgage rates will only ease to around 6.5% by the end of the year.
"We think that reports of a wave of new resale supply coming onto the market are overblown. While the number of homes being listed for sale has increased compared to last year, it is still low by historical standards, as mortgage rate 'lock-in' continues to curb the number of homes put up for sale. That supports our upbeat call on house prices this year," said Thomas Ryan, the firm's property economist.
Ryan added that the housing market appears even "tighter" than it was a year ago, with houses selling three days faster on average than last year, according to Realtor.com data.
Home prices increased by 5.5% in 2023, driven by high mortgage rates and low inventory levels. As of February 2024, home prices were up 6.4% from last year, with the median sales price exceeding $412,000, according to Redfin.
"Ultimately the key to a full recovery in existing homes is much lower mortgage rates," Ryan said. "That tight supply paired with a recovery in buyer demand should keep competition for homes strong and support prices."
