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Housing market to remain 'stuck' until at least 2026, Bank of America says
Housing market to remain 'stuck' until at least 2026, Bank of America says
CNBC
The housing market is unlikely to recover for several years and affordability won’t get any better unless a recession hits, according to Bank of America economists. In a mostly pessimistic outlook on the sector, the bank sees a variety of factors lining up against both a major improvement in sales and a drop in prices that would bring younger buyers back into the market. Among them are pandemic-related factors that saw a rush of buyers come into the market around 2020 and 2021, driving a dramatic spike in sales and coinciding with an inflation burst that goosed interest rates to their highest level since the turn of the 21st century. Sales have largely been on a downtrend since, outside of a spike earlier this year amid unrealized hopes that the Federal Reserve would be cutting interest rates aggressively. “The US housing market is stuck, and we are not convinced it will become unstuck anytime soon,” Bank of America economist Michael Gapen and others said in a Monday note. “After a surge in housing activity during the pandemic, it has since retreated and stabilized. We view the forces that have reduced affordability, created a lock-in effect for homeowners, and limited housing activity will remain in place through our forecast horizon,” he added. The affordability situation won’t change “without a recession,” Gapen wrote. In some respects, the housing market is a victim of its own success: Buyers swarmed in after Covid hit, taking advantage of mortgage rates around 3% and even less. Now, with 30-year rates still hovering around 7%, the “lock-in effect” has meant that owners can’t afford to sell into a market where they will pay rates more than double when they bought their homes. That has dampened sales but not prices , with little relief expected anytime soon as Fed officials have doused hopes for significant policy easing anytime soon, and as supply levels remain constrained. “We think it could take 6 to 8 years for the lock-in effect (dearth of transactions in existing homes) to go away,” Gapen said. “The wide gap between current mortgage rates and effective mortgage rates means most homeowners are unwilling to move unless forced.” Indeed, existing home sales have plummeted since early 2021 when they were at a seasonally adjusted annual rate of 6.6 million, according to the National Association of
CNBC
The full article is available here. This article was published at CNBC Economics.
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