Housing market forecast to remain difficult until 2026

THE US housing market is congested and unlikely to exit this situation until 2026, according to Bank of America.

According to Bank of America's forecast, the housing shortage and high prices will continue in the US. Along with that, home loan interest rates may not decrease much even if the Federal Reserve (Fed) cuts interest rates.

Bank of America chief US economist Michael Gapen advises first-time homebuyers to be patient. "This is going to take years to resolve. There's no magic bullet," he told CNN .

Real estate prices soared during Covid-19. Then the Fed ’s war on inflation sent interest rates soaring. The double whammy made buying a home now more difficult. “It’s a strange combination. Mortgage rates have gone up significantly and home prices have gone up. That doesn’t usually happen,” Gapen said.

New homes completed in Tampa, Florida, May 5, 2021. Photo: Reuters

Last month, the median home price rose for the 11th straight month, to a record $419,300, up 6% from the same period in 2023. Bank of America forecasts that real estate in the world's largest economy will cost 4.5% more this year and 5% next year, before falling 0.5% in 2026.

Meanwhile, data from mortgage firm Freddie Mac shows that the average interest rate on a 30-year fixed loan reached a six-month high of 7.22% in early May. This level dropped around 6 months. .87% on June 20.

House prices increased due to lack of supply. Meanwhile, the reason for the significant impact on supply is the asset lock-in effect. That is, people who bought houses with low interest rates during the Covid-19 epidemic do not want to resell them to buy new apartments, when prices and interest rates increase.

Bank of America warns that this effect could last another 6-8 years, meaning real estate supply will still be difficult in the near future. In theory, the supply of new homes helps unwind the market. However, this bank expects the number of new housing starts will not change in the coming years.

According to a recent Gallup poll, only 21% of Americans think now is a good time to buy a home. But 76% of respondents say now is not the time to buy a home.

Bank of America's Gapen said that if the US economy achieves a soft landing - meaning inflation cools without triggering a recession - there is a risk that home prices will rise more than expected.