By Sarupya Ganguly | Reuters (abridged)
High mortgage rates will keep turnover in U.S. residential housing subdued this year and next with very modest price rises, according to property specialists surveyed by Reuters.
The benchmark 30-year mortgage rate, which underpins most U.S. home loans, has hovered around 6.6% in recent months. That is much higher than the average 4.3% in the previous decade and is not expected to fall meaningfully any time soon.
The Federal Reserve is no longer expected to cut interest rates this year, according to a separate Reuters poll of economists, while financial markets are pricing a December hike.
That suggests prospects for a market revival might be bleaker than the poll results suggest.
Median forecasts from the June 1 to June 11 survey showed the 30-year mortgage rate at 6.4% next quarter and 6.3% in the fourth. The 30-year mortgage rate is forecast to average more than 6.0% through 2028, roughly 25 basis points higher than in a survey taken three months ago.
Average home prices as measured by the S&P Cotality Case-Shiller 20-City Index were forecast to rise just 1.2% this year – even slower than last year’s 14-year low of 1.4% – and 2.0% next, weaker than March forecasts and well below U.S. inflation.
“We’ve gotten to a point where it is becoming increasingly challenging for the typical American to get on the housing ladder,” said James Knightley, chief international economist at ING. “The average mortgage for a home purchase is about $460,000…meaning you’re paying nearly $3,000 per month – more than 50% of the median after-tax pay of the average American.”
“As a result, the number of transactions has remained very low. In fact, we have the same level of transactions today as we did during the 2007-08 global financial crisis. That really underscores how challenged the housing market currently is.”
Existing home sales, which make up 90% of total transactions, were forecast to be steady at an average annualized 4.1 million-unit rate this quarter and next before edging up to slightly below 4.2 million in the final quarter of the year – well below the early 2021 peak of 6.6 million.
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