The housing market’s biggest challenges aren’t likely to go away anytime soon.
Economists at Bank of America warned that with the supply of homes for sale near record lows, the housing market is “stuck in a quagmire with no prospect of emerging” until 2026.
The so-called lock-in effect for homeowners who secured ultra-low interest rate mortgages when interest rates were low during the pandemic has led them to remain in their positions.
The investment bank believes the impact could last six to eight years, dampening housing activity and, in turn, residential investment, which is reflected in GDP calculations.
High interest rates are having a major impact on homeownership.
Despite recent declines in borrowing costs, mortgage rates remain hovering around 7%, supply is low and prices for homes for sale are rising.
Home prices hit a record high in April, but the annual growth rate slowed from the previous month, according to the latest data from Case-Shiller. Bank of America expects home prices to rise about 4.5% this year, 5.0% next year and 0.5% in 2026.
“Home prices are already outstripping their long-term fundamental value based on disposable income,” Bank of America economist Michael Gapen wrote in a client note on Friday.
“Second, we expect the economy to continue to normalize as the effects of the pandemic become a thing of the past. The structural changes in housing demand that have driven up home prices should fade over time. That said, we believe a significant decline in home prices is unlikely.”
