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Record low interest rates and a scarcity of homes to buy,
combined with unexpectedly explosive demand during the pandemic,
sent the average house price up 17% last year, the strongest
annual rise in at least two decades.
That has stretched affordability ever further, particularly for
aspiring new homebuyers, a common theme across most developed
economies as the global economy emerges from the worst of
COVID-19 and central banks raise interest rates.
The Feb. 8-28 poll of 33 property analysts suggested U.S. house
prices would rise 10.3% this year. That was an upgrade from 8.0%
in the December poll, suggesting underlying demand for housing
is still strong and housing supply is still tight.
Prices are forecast to rise 5.0% next year and 4.1% in 2024,
marginal upgrades compared with 4.0% and 3.7% in the last poll.
Predictions are based on the Case/Shiller index.
Russia's invasion of Ukraine and the ensuing conflict has
injected some caution into interest rate expectations, which
could keep 30-year mortgage rates lower and in turn may leave
the near-term trend largely intact.
"The recent pace of home price increase is clearly
unsustainable," said Brad Hunter, head of independent
consultancy Hunter Housing Economics, who expects just under 8%
house price inflation this year, followed by 4.1% in 2023.
"The expectation is for the rate of increase to slow to a pace
closer to the pace of income growth of households made up of
people who are in their late 20s and early 30s. The millennials
are driving the surge in demand for single-family homes. There
is, however, very little risk that home prices will decline in
this cycle."
Graphic: Reuters poll outlook on U.S. housing market:
https://fingfx.thomsonreuters.com/gfx/
polling/myvmnxaexpr/Reuters%20poll%20on%20U.S.%20house%20prices.png
When asked what federal funds rate would bring about a
significant slowdown in the housing market this year, analysts
returned a median of 1.75%. That is 50 basis points above where
a separate Reuters poll predicted it to end 2022, at 1.25%, and
also well above money market pricing. [ECILT/US]
"We consider a funds rate above 2% to be restrictive, a rate
that would slow economic growth and probably dampen housing
activity," Nancy Vanden Houten, lead U.S. economist at
consultancy Oxford Economics, said.
In the meantime, house prices are set to keep climbing.
A like-for-like analysis showed 12 of 18 analysts had upgraded
their predictions from the December poll. While four kept them
unchanged, two analysts downgraded them.
Roughly 57% of analysts, or 17 of 30, predicted double-digit
house price rises this year, nearly double the 30% in the last
poll. All but one of 27 analysts said it would remain a sellers'
market this year and will only turn in 2024.
Already at historic lows, housing inventory levels are likely to
worsen as rising input costs encourage builders to build more
expensive homes where profit margins are better than the starter
homes which are in such high demand.
Existing home sales, which make up about 90% of total sales,
were expected to average a little over 6 million annualized
units this year, around where they've been over the past 19
months.
Asked to rate U.S. house prices on a scale of 1 to 10 where 1
was extremely cheap and 10 extremely expensive, analysts who in
most Reuters polls since 2017 had rated it 7 or below nudged the
median assessment higher in the latest survey to 8.
(For other stories from the Reuters quarterly housing market
polls:)
(Reporting by Hari Kishan; Polling by Sarupya Ganguly and Anant
Chandak; Editing by Ross Finley and Andrew Heavens)
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