Americans looking to buy a home may have to wait, as home prices are expected to remain elevated until 2026 and beyond, according to a note released on Monday by Bank of America economists.
High inflation under President Joe Biden and a housing shortage exacerbated by the COVID-19 pandemic have left homebuyers facing rising interest rates and making Americans hesitant to move. according to As a result, the bank's economists expect home prices to rise a total of 4.5% through 2024, then rise a further 5.0% through 2025 before falling slightly in 2026.
“The U.S. housing market is in a tailspin that is not expected to ease anytime soon,” Bank of America researchers wrote. “We expect the forces that have reduced homebuyability, created homeowner lock-in effects, and limited home transactions to continue throughout our forecast period.”
Bank of America predicts that a “prolonged lock-in effect” will “restrain sales of existing homes.”
BofA Existing Home Sales Forecast:
24 Q3: 4,087,000
Q4 2024: 4,052,000
25 Q1: 4.028 million
Q2 2025: 4.03 million
25 Q3: 4,043,000
25 Q4: 4,069,000
1st quarter of 2014: 4,099,000
Q2 2026: 4.128 million
Q3 2026:… pic.twitter.com/ux8NmSwjiw— Lance Lambert (@NewsLambert) June 24, 2024
The Federal Reserve raised the federal funds rate to 5.50% from 5.25%, the highest level in 23 years, and the average interest rate on a 30-year fixed mortgage rose from less than 3%. When Biden first took office 6.86% as of Thursday according to The rate hike comes as inflation rises, with prices up more than 20% since Biden took office in January 2021, according to data from the Federal Reserve Bank of St. Louis. (Experts say Biden administration's housing policy could add fuel to the fire of the housing shortage.)
Bank of America's gloomy outlook for home prices comes after the median price of an existing U.S. home rose for the 11th consecutive month in May, climbing 6 percent from a year earlier to a record high of $419,300. according to To the National Association of Realtors.
According to Bank of America, rising mortgage rates and prices have economists pessimistic about the housing market due to the “lock-in effect,” a phenomenon in which current homeowners refuse to put their homes on the market because it would mean giving up the ultra-low interest rate mortgages they secured before the Fed's recent actions.
“We believe it could take six to eight years for the lock-in effect (lack of transactions for existing homes) to disappear,” Bank of America analysts wrote. “The wide spread between current mortgage rates and effective mortgage rates means that most homeowners have no intention of moving unless they are forced to.”
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