Property experts anticipate a persistent rise in U.S. home prices over the coming years, propelled by modest interest rate cuts by the Federal Reserve and a reluctance among existing homeowners to sell, according to a Reuters poll. As many homeowners continue to hold onto attractively low mortgage rates from the pandemic, the limited supply of homes for sale, coupled with robust demand and a strong economy, is expected to keep home prices on an upward trajectory. Despite a brief correction, average house prices soared approximately 50% during the pandemic, reaching new records in the past year.
After defying previous expectations with a 6% rise last year, average home prices are forecast to grow by 3.3% in 2023, followed by approximately 3.0% in both 2025 and 2026. Analysts suggest that even with mortgage rates stabilizing, the scarcity of resale inventory will contribute to the resilience of home prices. The 30-year fixed mortgage rate, which recently surpassed 7.0%, is projected to average 6.50% in 2023 and gradually decline to 5.75% in 2026, according to median forecasts.
Experts believe that while easing mortgage rates may encourage more resale units to enter the market, resale inventory is not expected to see a substantial increase. This is attributed to over 80% of current homeowners estimated to have mortgages under 5%, dissuading them from trading up due to higher rates. The persistently high house prices could also impact the Federal Reserve’s decision on interest rate cuts.
Affordability remains a central concern in the housing market, and the projection of only a slight decline in mortgage rates is unlikely to alleviate this challenge. Analysts predict that new home purchases, particularly for young families, will continue to be a struggle, contributing to ongoing issues of supply and demand in the housing market.
