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Reuters
6 days ago
- Business
- Reuters
US home prices to rise 3.5% this year but tariffs will hinder new construction: Reuters poll
BENGALURU, June 3 (Reuters) - U.S. home prices will rise steadily over coming years on an expected further decline in mortgage rates, according to property experts in a Reuters survey who expressed a near-unanimous view President Donald Trump's tariffs would hinder affordable home construction. The same analysts had said three months ago that affordability and turnover in the market would improve, an upbeat outlook hinging on expectations the Federal Reserve will resume cutting interest rates after staying on the sidelines all year. That optimism has since been tempered with Congress passing a sweeping tax-cut and spending bill estimated to add roughly $3.3 trillion by 2034 to an already-enormous $36.2 trillion debt pile, according to nonpartisan think tank the Committee for a Responsible Federal Budget. Long-term bond yields have spiked higher, limiting scope for a decline in mortgage rates. "Looking ahead through the rest of this year and into 2026, we don't expect mortgage rates to come down much — at least not through the third quarter of 2025 — so affordability will remain pressured," said James Egan, housing strategist at Morgan Stanley. U.S. home prices based on the S&P CoreLogic Case-Shiller composite index of 20 metropolitan areas (USSHPQ=ECI), opens new tab are forecast to rise 3.5% each year through 2027, according to a May 19-June 3 Reuters survey of 27 property analysts. If realised, that would be the slowest pace of home price rises since 2011. Average home prices are more than 50% above where they were in 2019, before the COVID-19 pandemic. "The housing market remains in a cooler phase as sellers continue to adjust to looser conditions after the red-hot pandemic years," said Thomas Ryan, an economist at Capital Economics. Even with two more Fed interest rate cuts expected later this year according to rate futures, 30-year mortgage rates (USMG=ECI), opens new tab are only set to ease to an average 6.73% this year from 6.98% currently. They are forecast to fall to average 6.33% next year and 6.29% in 2027, survey medians showed, still over double some of the lowest rates of around 3% buyers took out during pandemic years that few are willing to relinquish. "If mortgage rates were to drop meaningfully — say by 50 to 100 basis points — we could see a surge in buying activity. But rates really need to come down first,' said Lawrence Yun, chief economist at the National Association of Realtors. Construction spending fell unexpectedly in April and has been constrained by a decline in outlays on single-family housing projects and a rising inventory of unsold homes. It faces additional challenges from Trump's tariffs, most respondents said. "While there's still a lot of uncertainty about what level of tariffs are ultimately going to be implemented, they're going to make it more expensive to build. You'll see either fewer homes built, smaller homes built, or a combination of both," said Morgan Stanley's Egan. Asked how U.S. tariffs on major trading partners announced earlier this year would affect affordable home construction, a near-90% majority, 21 of 24, said fewer homes would be built, including two who said far fewer. Three said there would be no impact. "President Trump's inflationary trade and immigration policies leave no clear path to the lower borrowing costs the housing market desperately needs," said Capital Economics' Ryan, who expects no more Fed rate cuts this year and mortgage rates near 7%. Only half of respondents, 12 of 24, said purchasing affordability for first-time homebuyers would improve over the coming year, down from 62% in a February poll. Existing home sales (USEHS=ECI), opens new tab, which make up over 90% of total sales, were expected to remain around the current level of an annualized 4 million units next quarter and rise slightly to an average 4.1 million by year-end, well below a near-15 year high of 6.6 million in early 2021. (Other stories from the Q2 global Reuters housing poll)
Reuters
28-02-2025
- Business
- Reuters
US housing to get a bit more affordable this year, but mainly due to lower rates: Reuters Poll
BENGALURU, Feb 28 (Reuters) - Affordability in the U.S. housing market will improve modestly in the coming year, according to property market experts polled by Reuters, based on expectations for a few more interest rate cuts, not an increase in homes available to purchase. Home prices are set to keep rising modestly this year and next, in forecasts broadly unchanged from a November survey and suggest little has been done to alleviate relentless financial pressure on aspiring first-time buyers. A 62% majority of respondents, 13 of 21, in a February 14-27 Reuters survey said purchasing affordability for first-time home buyers over the coming year would improve, compared with 53% three months ago who said it would worsen. That was mostly down to an expected dip in 30-year mortgage rates (USMG=ECI), opens new tab from near 7% to an average 6.76% this year, and 6.32% next, poll medians showed. "By various measures, U.S. housing affordability is still the worst in about four decades. While we will see some improvement in the coming year, it will still be a challenge, particularly for many first-time buyers, to get into the market," said Sal Guatieri, a senior economist at BMO Capital Markets. "We expect home prices to continue rising, but at a more moderate rate than recently," Guatieri added. "This just reflects our view the housing market will slowly pick up as mortgage rates decline in response to anticipated Fed easing later this year and through next year." President Donald Trump has announced a series of executive orders and sweeping policy changes over the past month in the White House. But apart from expectations for a deregulation agenda, the administration is yet to announce any plans to address the lack of affordable homes. In the meantime, U.S. home prices based on the S&P CoreLogic Case-Shiller composite index of 20 metropolitan areas (USSHPQ=ECI), opens new tab were expected to rise 3.6% this year, median estimates from 27 property analysts showed. Home prices were then predicted to go up 3.3% and 3.5% respectively, in the coming two years. Part of this has to do with a persistent supply shortage, which has kept average U.S. home prices over 50% above pre-pandemic levels. Over 500 basis points of Fed rate hikes in 2022-23 broadly did nothing to lower house prices. The shortage of homes available to buy is partly driven by existing homeowners who secured historically rock-bottom mortgage rates during the pandemic and are reluctant to sell. "Since such an overwhelming percentage of the outstanding mortgage market is fixed-rate, where borrowers were able to take out loans in 2020-21 with two- or three-handle rates, their incentive in this current environment is to keep their homes off the market," said James Egan, Morgan Stanley housing strategist. "That's kept inventory very constrained and put upward pressure, and a holistic level of support, for home prices," said Egan, who doesn't expect affordability to improve drastically over the next year or two. Asked what would rise faster over the coming year, a 55% majority, 11 of 20, said home prices over rents. Average rents will increase around 3% this year, according to the median estimate from a smaller sample of respondents. Existing home sales (USEHS=ECI), opens new tab, comprising over 90% of total sales, were expected to rise modestly until mid-year and rise to an annualised rate of 4.15 million and 4.23 million units, respectively, in the third and fourth quarters. But those were downgrades from the previous survey and well below the 6.6 million units recorded in early 2021. "Fundamental demand remains strong due to an estimated housing deficit of 2.6 million units providing a floor under house prices," said Cristian deRitis, deputy chief economist at Moody's Analytics. ((Other stories from the Q1 global Reuters housing poll))
