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A disappointing spring home-buying season has some real estate industry forecasters lowering their forecasts for 2024 home sales, although they remain confident of a rebound next year.
That’s not the case at Bank of America Global Research, where analysts believe it will take six years for home sales to rise until 2026 if home prices continue to rise and the “lock-in effect” felt by homeowners who refinanced at low rates during the pandemic will rebound.
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Bank of America Global Research economists Michael Gapen and Jesseo Park said in a June 24 U.S. report that pandemic-induced forces “have reduced affordability, had a lock-in effect on homeowners, and limited housing activity has will continue to exist within our forecast range”. economic perspective. “The U.S. housing market is in trouble and we don’t believe it will get out of trouble anytime soon.”
Home sales forecast reflects uncertainty
Sources: Fannie Mae Housing Forecast, June 2024; MBA Mortgage Finance Forecast, June 2024; NAR Economic Update, May 2024; BofA Global Research U.S. Economic Perspectives, June 2024.
Bank of America analysts predict that rising home prices and mortgage rates, coupled with a lack of inventory, will limit existing home sales to 4.1 million units in 2024.
Not only is that more pessimistic than recent forecasts from real estate industry economists hired by the National Association of Realtors (NAR), the Mortgage Bankers Association (MBA) and Fannie Mae, but Bank of America forecasts existing homes next year Sales will fall again, to 4 million.
NAR Chief Economist Lawrence Yun noted last month during a briefing with the trade group’s leadership in Washington, D.C., that last year was the worst year for existing home sales since 1995. In December, NAR forecast existing home sales to grow 13.5% in 2024, to 4.71 million units.
But NAR last month cut its current sales forecast for 2024 to 4.5 million units after mortgage rates rebounded and dampened spring home sales. NAR still expects existing home sales to reach 5 million units next year, with “further growth expected in eight of the next 10 years.”
Lawrence Yun
“The market is at an interesting moment, with inventory rising and demand falling,” Yun said in a statement Thursday, which announced that pending home sales fell 2.1% in May. “Supply and demand trends suggest home price appreciation will slow in the coming months. Inevitably, in a job-creating economy, more inventory will lead to more home purchases, especially as mortgage rates fall.
Fannie Mae’s respected Economic and Strategic Research (ESR) group also lowered its 2024 existing home sales forecast to 4.15 million units. But Fannie Mae economists expect sales of existing homes to rebound 9% next year to 4.51 million units as more listings come on the market and mortgage rates fall.
Doug Duncan
Growth in home sales “will require a combination of continued household income growth, a further slowdown in home price appreciation or lower mortgage rates to bring affordability within reach for the many waiting first-time and move-up buyers.” Fannie Mae chief economist Doug Duncan said in a statement.
Mortgage rates expected to continue falling
Source: Fannie Mae Housing Forecast, June 2024; MBA Mortgage Finance Forecast, June 2024.
MBA economists expect 30-year fixed-rate mortgage rates to steadily decline to an average of 6.0% in the fourth quarter of 2025 and agree with Fannie Mae economists who forecast home sales will rebound to 4.49 million units next year .
The thinking behind Bank of America’s view
The different views of Bank of America analysts attracted the attention of CNN and other media.
Michael Gapen
Gapon, who held the same role at investment bank Barclays before becoming Bank of America’s chief U.S. economist, also lists experience at the Federal Reserve and the International Monetary Fund on LinkedIn.
Jixi Park
Parker is a U.S. economist at Bank of America, focusing on macroeconomic issues affecting housing, and a recent graduate of the University of California, Berkeley.
Bank of America economists said in the latest “U.S. Economic View” that affordability has fallen to its lowest level in 50 years, dating back to the early 1980s, when the Federal Reserve raised short-term interest rates to nearly 20% to Cool down the economy.
In the past, rising mortgage rates have dampened home price gains. But Gapen and Park expect home prices to continue rising — by 4.5% this year and 5% in 2025 — before appreciating that decline to 0.5% in 2026.
They said the pandemic “triggered a one-off shift in relative demand for housing in low-density areas that will take years to translate into house prices” and is unlikely to be reversed.
Bank of America analysts said that while the speculation that drove the housing boom before the 2007-09 recession “eventually led to housing’s demise, we don’t think that will happen this time”. “Today’s rise in house prices is driven primarily by demand fundamentals rather than excessive speculation.”
They note that the average mortgage rate paid by U.S. households is at an all-time low since 1977, as many homeowners took the opportunity to refinance their mortgages during the pandemic when interest rates hit historic lows.
“The large gap between current mortgage rates and effective mortgage rates means that most homeowners are unwilling to move unless forced to do so,” Gapon and Parker wrote. “Furthermore, even if the Fed follows our expectations rate cut, we don’t expect current mortgage rates to fall significantly.”
While the scarcity of existing homes should incentivize homebuilders to build more new homes, Bank of America analysts noted that new home inventories are already near record levels and builders may be concerned about overexpansion.
That’s one reason Bank of America predicts that housing starts will remain flat through 2026, with new home sales averaging 650,000 units per year in 2024, 2025 and 2026 as economic growth slows and the labor market cools.
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