Bank of America predicts that US home prices will continue to rise following a surge of 46% from January 2020 to 2024 due to pandemic-era migration trends. The bank expects prices to increase by 4.5% and 5% this year and next, with a slight rise of 0.5% in 2026. However, if the pandemic factors driving the market persist, prices could jump by 5% instead. The Case-Schiller index reported the significant price surge over the specified period.
According to a Redfin report, first-time homebuyers now need to make twice as much money as they did four years ago to afford a home. Bank of America believes a recession would be necessary to increase affordability, but with pandemic distortions expected to normalize by 2025, these effects should disappear. After that, housing appreciation will be driven by fundamentals at a more moderate pace.
Despite the surge in home prices and mortgage rates during the pandemic, the lock-in effect has kept many owners from selling their homes, suppressing sales throughout 2022 and 2023. The bank anticipates that it could take 6 to 8 years for this effect to dissipate, as most homeowners are unwilling to move due to the discrepancy between current and effective mortgage rates. Analysts expect mortgage rates to remain elevated even if interest rates decrease.
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