U.S. home prices are expected to decline modestly this year, according to a recent Reuters poll of property analysts. However, the projected decline is less than previously thought because demand for homes has fallen only slightly despite ongoing inflation and the prospect of further interest rate hikes.
The poll of 29 analysts, conducted between Feb. 15 and March 2, forecast that average home prices based on the Case/Shiller index will fall by 4.5% in 2023, followed by no increase in 2024. The 4.5% dip is down from a projected 5.6% decline three months earlier.
Average home prices are expected to fall 10% from peak to trough. That’s less than one-third of the price slump that hit during the 2007-08 global financial crisis (GFC) and also down from the 12% decline projected in December 2022.
“Buyers are ready to get back into the market,” Crystal Sunbury, senior real estate analyst at RSM, told Reuters. “However, volatile mortgage rates – which had dropped in January, encouraging sales activity – will continue to pose affordability challenges, limiting demand.”
Nearly two-thirds of the analysts polled said purchasing affordability would improve over the coming year. But they were almost evenly divided on how home ownership would change over the next two to three years, with about half saying it would decrease and the other half saying it would increase.
“There are growing signs [that] stretched affordability is weighing on home ownership, particularly for those under 35. We expect this to persist in the coming quarters,” said Sam Hall, property economist at Capital Economics. “We don’t think affordability will return to its post-GFC levels or even its pre-pandemic average in the coming years.”
The median price of homes that sold in the U.S. hit $467,700 during the 2022 fourth quarter, according to Federal Reserve data. That was up from $423,600 the previous year and continued a sharp rise that began in early 2020.
Higher home prices also pushed rental rates higher, although those have been decelerating of late. Year-over-year rent growth stood at 2.6% in March 2023, according to the most recent Apartment List National Rent Report. That was the lowest rate since April 2021. Year-over-year growth is now pacing slightly below the average rate from 2018 to 2019 (2.8%) and is likely to decline even further in the months ahead, the report said.
As rents stabilize, housing prices should follow suit, according to Mark Zandi, chief economist at Moody’s Analytics.
“Rents have gone from flat to down here in the last three, six and nine months,” Zandi told CNBC last week. “This will result in lowered housing costs here till the end of the year.
Bank of America Securities economist Michael Gapen gave a similar assessment, noting in a recent report that inflation trends point to the start of a “long-awaited moderation” in rent.Source: Yahoo!finance