According to property analysts polled by Reuters, U.S. home prices are projected to experience a lesser decline than previously anticipated this year before reaching a point of stagnation in 2024. This forecast comes despite widespread expectations that interest rates will remain higher for an extended period. Remarkably, even with the U.S. Federal Reserve undertaking its most aggressive tightening cycle in four decades, average home prices have only fallen by just over 5% from their recent peaks.
This minor dent in prices pales in comparison to the staggering 45% surge witnessed during the COVID-19 pandemic. The suspense lingers as experts ponder the future of U.S. home prices amidst evolving economic conditions and rate hikes. U.S. home prices defy expectations, showing resilience despite higher interest rates. The tight supply of homes leads to a smaller-than-predicted decline of 2.8% this year.
Average house prices are forecasted to stagnate in the next year across 20 metropolitan areas. With a predicted peak-to-trough decline of 9%, U.S. home prices are set to fall less than one-third of the slump witnessed during the global financial crisis. This leaves prices unattainable for aspiring homeowners. Property economist Sam Hall from Capital Economics anticipates further price declines due to stretched affordability and a weakening economy impacting buyer sentiment.
However, the limited housing supply poses a risk that prices may not drop as much as previously expected. As high consumer inflation persists, the Federal Reserve is likely to maintain its key rate until the end of 2023, keeping mortgage rates elevated. The 30-year fixed mortgage rate is projected to average 6.2% in 2023 and drop to 5.5% in 2024 when rate cuts are anticipated.