Home prices could climb even higher over the next year, Zillow economists said.
The real estate listing company predicted a 5% home price increase, lower that 6.5% is previously predicted.
Home prices could jump as much as 5% over the next year, thanks to higher mortgage rates prolonging the deep freeze of the US housing market, according to Zillow economists.
The real estate listings site revised its 12-month outlook for home prices, predicting a 4.9% increase by August 2024. That’s slightly down from its 12-month home price outlook in July, when the firm predicted a 6.5% increase in home prices by July of next year.
Meanwhile, the firm expected total home sales to clock in around 4.1 million this year, slightly down from the previously anticipated 4.2 million.
“Zillow’s forecast of the nation’s typical home value was revised downward this month due to the anticipation of higher mortgage rates and a slight decrease in market tightness,” economists said in a note published Monday.
The Fed didn’t help the outlook for rates this week. At the conclusion of its September policy meeting on Wednesday, chairman Jerome Powell said that the central bank wouldn’t hike rates again this month but warned that they could remain elevated for longer.
That’s tough news for prospective home buyers, who have watched mortgage rates march steadily higher for over a year, partly as a result of the Fed’s tightening of monetary policy.
While borrowing has become more expensive, high mortgage rates also discourage homeowners from listing their properties for sale as they cling to low rates secured years ago, exacerbating the shortage of supply and pushing up prices.
According to Bankrate, the 30-year fixed mortgage rate climbed 24 basis points in the last week to 7.75%. Meanwhile, the latest Case-Shiller home price data shows home values climbing back to near all-time-highs during the month of August.
Inventory levels, though, have increased slightly, which was a cited as the reason why Zillow chose to downgrade its home price forecast. New listings jumped 4% last month, which could help ease supply pressures and cap home price increases over the next year.
“To be clear, August’s new listings total – as well as total for-sale inventory – remains well below typical levels seen prior to the pandemic, and inventory conditions remain very tight.That said, this unusual late-summer uptick helped to ease the market conditions some, causing our outlook for home values to cool,” economists added.
Experts have warned housing affordability is unlikely to improve until mortgage rates dial back more significantly. That could unlock more inventory to hit the housing market, but it’s unlikely to happen anytime soon, with experts forecasting mortgage rates to end the year around 6%.
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