By In a recent Reuters poll, housing analysts forecast that U.S. home prices will rise modestly this year and next, despite tight supply and anticipated interest rate cuts by the Federal Reserve. The survey indicates that while purchasing affordability is expected to improve, it will remain strained. This forecast comes as the Fed is expected to start cutting rates in September, which could help stabilize the housing market.
The Reuters poll, conducted between August 19 and 29, 2024, surveyed nearly 30 property analysts. They predicted that U.S. home prices, based on the S&P CoreLogic Case-Shiller composite index of 20 metropolitan areas, will rise by a median of 5.4% in 2024. This increase is relatively modest compared to previous years, reflecting a more subdued upswing in the housing market. Analysts also expect home prices to climb by 3.3% in 2025 and 3.4% in 2026, slightly outpacing average consumer price inflation forecasts.
Despite the anticipated rate cuts, the housing market remains constrained by a lack of adequate supply. Many homeowners who locked in low 30-year mortgage rates are reluctant to sell, contributing to the limited availability of homes. This shortage is expected to keep home prices elevated, even as mortgage rates begin to decline.
Impact of Fed Rate Cuts
The Federal Reserve’s decision to cut interest rates is expected to have a significant impact on the housing market. The 30-year mortgage rate, which averaged nearly 7% through 2023, fell to a 16-month low of 6.44% last week. It is forecast to average 6.7% in 2024, before declining to 6.0% next year and 5.9% in 2026. These lower rates are anticipated to improve purchasing affordability for first-time homebuyers, although affordability will remain stretched due to the ongoing supply shortage.
Analysts believe that the Fed’s rate cuts will help stabilize the housing market in the coming months. However, if home prices continue to rise, it may be challenging to see a significant improvement in affordability. The combination of lower mortgage rates and limited supply is likely to keep the housing market competitive.
Challenges in the Housing Market
The U.S. housing market faces several challenges, including weak housing starts and existing home sales. Despite these challenges, home prices have continued to hit record highs due to the limited supply of homes. Many potential sellers are hesitant to list their homes, further exacerbating the supply shortage.
The acute shortage of previously-owned homes, with inventory levels still roughly 33% below pre-pandemic averages, is a significant factor in the current housing market dynamics. This shortage is expected to persist, keeping affordability stretched for many potential buyers. Analysts suggest that the housing market will continue to stabilize as mortgage rates decline, but the supply constraints will remain a critical issue.