The housing market is ‘stuck’ until at least 2026, Bank of America warns | CNN Business (2024)

The housing market is ‘stuck’ until at least 2026, Bank of America warns | CNN Business (1)

The mortgage rate of people who already own is historically low, and the rate for new buyers is elevated. Bank of America doesn’t think that gap will shrink much for years.

New York CNN

Help may not be on the way for first-time homebuyers frustrated by high mortgage rates and even higher home prices.

Economists at Bank of America warned this week that the US housing market is “stuck and we are not convinced it will become unstuck” until 2026 — or later.

The bank said home prices will stay high and go even higher. The housing shortage will persist. And mortgage rates may not fall much — even if the Federal Reserve finally delivers long-delayed interest rate cuts.

“This will take many years to work itself out. There isn’t a magic fix,” Michael Gapen, head of US economics at Bank of America, told CNN in a phone interview. “The message for first-time homebuyers is one of patience and frustration.”

Housing affordability is a major problem in America.

Home prices spiked during Covid-19 and then the Fed’s war on inflation sent mortgage rates surging.

The one-two punch has made it a historically unaffordable time to buy a home.

“It’s been a weird combination. Mortgage rates rose substantially but so did home prices. That typically doesn’t happen,” said Gapen.

The supply of homes simply cannot keep up with demand. Prices have had nowhere to go but up.

The median price of a previously owned US home climbed in May for the 11th month in a row to a record $419,300 — up 6% from a year earlier.

Bank of America expects home prices will climb by 4.5% this year and then by another 5% in 2025 before eventually dipping by 0.5% in 2026.

‘Lock-in effect’ could persist for eight years

One major problem hurting supply is the “lock-in effect.”

People who already own their home are effectively locked into their property after refinancing or getting a mortgage during the pandemic when ultra-low rates were available. Buying now at current rates would require them to pay hundreds of dollars more per month on interest alone. Plus, home prices have gone up.

Homes in Napa, California, US, on Monday, May 6, 2024. David Paul Morris/Bloomberg/Getty Images Related article The hidden costs of owning a home are surging for Americans

For many, it just doesn’t make sense to move. And because those homeowners are not moving, the supply of existing homes on the market is limited.

“Why would I sell unless I have to?” said Gapen. “Prices have gone up and the mortgage rate is a lot higher. So, I’m content to stay where I am.”

Bank of America warns the lock-in effect could persist for another six to eight years, keeping a lid on supply during that time.

That’s because the mortgage rate of people who already own is historically low. And the rate for new buyers is elevated. Bank of America doesn’t think that gap will shrink much for years.

This problem helps explain why pending home sales fell in May to a record low, according to data released on Thursday. Pending sales, tracked by the National Association of Realtors since 2001, are a forward-looking gauge of home sales that measures contract signings.

‘They can’t take their mortgage rate with them’

Dave Liniger, who co-founded real estate giant RE/MAX with his wife in 1973, said the lock-in effect means people who want to size up to a bigger home can’t, and the next generation can’t even get their foot in the door for a starter property.

“The move-up market does not exist,” Liniger told CNN. “Starter homes have doubled in value and the owners would like to move up but the problem is they can’t take their mortgage rate with them.”

Liniger agrees that the housing market is stuck, for now at least.

“We have to muddle our way through this for a period of time,” he said.

But Liniger urged first-time homebuyers to remain patient. “Don’t give up the dream,” he said.

In theory, a flood of supply of new homes would help unstick the market.

However, Bank of America expects housing starts — which is a measure of newly constructed homes — to remain flat for the coming years. And housing starts have still not recovered from the bursting of the housing bubble in the mid-2000s.

Divide between haves and have-nots

The forecast for a “stuck” housing market cuts both ways.

The spike in home prices has padded the net worth of existing homeowners and given them additional financial flexibility.

The downtown skyline of Los Angeles, California is seen on January 22, 2024. Mario Tama/Getty Images/File Related article These cities are now so expensive they’re considered ‘impossibly unaffordable’

But there are many Americans who are on the outside looking in. They’d like to buy but can’t afford to at these prices and these mortgage rates.

The longer they are prevented from buying, the more time they miss out on wealth creation.

In a recent Gallup poll, just 21% of Americans said it is a good time to buy a house, tied for the worst reading in Gallup history. An overwhelming majority — 76% — say it’s a bad time to buy.

Gapen, the Bank of America economist, said if the US economy achieves the soft landing that he expects, meaning that inflation cools without triggering a recession, there is a risk that home prices will rise even more than anticipated.

On the other hand, if the durability of the recovery has been overestimated and a recession is on the way, home prices could tumble and affordability would ease.

“But, obviously, you don’t want to go through a recession to have better housing affordability,” he said.

The housing market is ‘stuck’ until at least 2026, Bank of America warns | CNN Business (2024)

FAQs

The housing market is ‘stuck’ until at least 2026, Bank of America warns | CNN Business? ›

According to Wall Street economists, the U.S. housing market will not significantly improve until at least 2026, and home affordability is unlikely to increase without a recession.

Is the housing market stuck until 2026? ›

According to Wall Street economists, the U.S. housing market will not significantly improve until at least 2026, and home affordability is unlikely to increase without a recession.

Will 2026 be a good year to buy a home? ›

Bank of America economists predict that house prices will remain high until at least 2026. Their report suggests that while the rapid price surges experienced during the pandemic will cool down, prices will not drop significantly.

What is the Bank of America housing prediction? ›

The pandemic-driven boost to prices should last until at least 2026, according to Bank of America. Housing prices are rapidly rising, and there's room for them to go even higher, according to Michael Gapen. The bank predicts that home prices will rise 4.5% in 2024 and 5% in 2025.

Is there going to be a housing market crash in 2024? ›

Experts overwhelmingly say that the housing market isn't going to crash anytime soon. The last housing crash helped cause today's lack of supply, which is what's keeping prices from falling. Mortgage rates, however, are expected to fall this year. This will help make homeownership more affordable.

Will mortgage rates go down in 2026? ›

"By the end of 2026, borrowing rates are expected to have declined substantially as inflation returns close to target," the global financial institution said in a report. High interest rates in the U.S. have tightened financial conditions in the world's largest economy.

How is the US housing market now? ›

U.S. Housing Market Overview

The national average 30 year fixed rate mortgage rate is at 6.9% and up 0.2 points year over year.… The direction and pace at which home prices are changing are indicators of the strength of the housing market and. The median price of a home in the United States is currently $442,451.…

Is the housing market stuck until 2026 Bank of America? ›

Economists at Bank of America warned this week that the US housing market is “stuck and we are not convinced it will become unstuck” until 2026 — or later. The bank said home prices will stay high and go even higher. The housing shortage will persist.

What is the market prediction for Bank of America? ›

The average price target for Bank of America is $45.47. This is based on 16 Wall Streets Analysts 12-month price targets, issued in the past 3 months. The highest analyst price target is $52.00 ,the lowest forecast is $39.00. The average price target represents 23.16% Increase from the current price of $36.92.

Is Bank of America a good investment right now? ›

Is Bank of America stock a Buy, Sell or Hold? Bank of America stock has received a consensus rating of buy. The average rating score is A1 and is based on 53 buy ratings, 23 hold ratings, and 8 sell ratings.

Should I sell now or wait until 2025? ›

While the current market favors sellers, indicating that a home sale now could yield a competitive sale price, waiting until next year might align better with forecasts predicting shifts in mortgage interest rates and the overall housing market.

Should I buy a house now or wait for a recession? ›

If your credit score is strong, your employment is stable and you have enough savings to cover a down payment and closing costs, buying now might still be smart. If your personal finances are not ideal at the moment, or if home values in your area are on the decline, it might be better to wait.

Will the housing market crash in 2027? ›

But here's the kicker: I anticipate a leveling off as the economy stabilizes and mortgage rates start to come down.” Lord: “The rate of growth in home prices will decline in the coming years with the expectation for a 2.5% increase in 2024, 3% increase in 2025, 3% increase in 2026 and 2027, and 2% rise in 2028.

What is the housing market forecast for 2025 in Utah? ›

Despite the positive start, the growth rate is anticipated to slow down. By Q4 2025, home prices are projected to see a modest gain of 1.5% compared to Q4 2024. This indicates a deceleration in the growth rate.

What is the Florida housing market doing? ›

The data compiled by GoBankFunding show how some housing markets in Florida have been rapidly cooling following the end of the pandemic, in part due to a surge in new listings and new constructions—especially in the west coast of the state.

Should you sell your house now, the pandemic-driven boost to prices should last until at least 2026 according to Bank of America? ›

In a recent note, Chief US Economist Michael Gapen and his team revealed that they expect home prices to rise by 4.5% this year and 5% in 2025. Gapen doesn't foresee the market cooling down until 2026 at the earliest. With this in mind, current homeowners can sell for even higher prices in the future.

When did the mortgage market crash? ›

The American subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010 that contributed to the 2007–2008 global financial crisis.

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