New York – First-time homebuyers seeking relief from high mortgage rates and soaring home prices may have to wait longer for any signs of improvement. Economists at Bank of America are pessimistic about the US housing market, predicting that it will remain “stuck” until 2026 or beyond.
Bank of America analysts anticipate that home prices will continue to rise, exacerbating the existing housing shortage. Despite potential interest rate cuts by the Federal Reserve, mortgage rates are expected to remain high. Michael Gapen, head of US economics at Bank of America, emphasized the need for patience and acknowledged the frustration felt by first-time homebuyers.
Housing affordability has become a significant challenge in the United States, with a surge in home prices during the COVID-19 pandemic followed by a sharp increase in mortgage rates due to the Fed’s efforts to combat inflation. This unusual combination has created historically unaffordable conditions for prospective homebuyers.
The supply of homes has struggled to keep pace with demand, leading to a continuous upward trend in prices. The median price of previously owned homes in the US reached a record high in May, further compounding the affordability issue.
Existing homeowners are also facing challenges, as the “lock-in effect” from refinancing or obtaining mortgages during the pandemic has made it financially impractical for many to sell or move. This trend is contributing to the limited supply of homes on the market.
Dave Liniger, co-founder of real estate company RE/MAX, highlighted the impact of the lock-in effect on the housing market, noting that lack of movement among existing homeowners is hindering opportunities for others to enter the market. The stagnation in the housing market is expected to persist, particularly affecting first-time homebuyers.
Despite the current challenges, experts urge prospective homebuyers to remain hopeful and patient. While a flood of new home supply could potentially alleviate the market stagnation, Bank of America projects that housing starts will remain stagnant in the foreseeable future. The divide between homeowners benefiting from rising home prices and those struggling to enter the market underscores the complexity of the current housing landscape.
As the housing market navigates through uncertainties, it remains critical for policymakers and industry stakeholders to address the underlying issues contributing to the housing crisis. And for individuals aspiring to enter the housing market, maintaining optimism and seeking ways to navigate the challenges will be essential in achieving homeownership in the years to come.