Interest-rate-sensitive house prices, which surged 45% during the pandemic, have risen around 8% since early 2023, offsetting a 5% decline in the second half of 2022 caused in part by the 525 basis points of rate hikes 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, with markets pricing it for November—home prices are expected to continue their upward trend.
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. This was an upgrade from the 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.
However, home price increases are expected to slow to 3.3% in 2025 and 3.4% in 2026, despite more than 200 basis points of interest-rate cuts expected by then. Mortgage rates are forecast to dip slightly more than a full percentage point from the current 7% but will remain 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 onto 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.
