First-time homebuyers may face tough times for a while. Bank of America economists warn that the US housing market won’t improve until at least 2026. Home prices are high and could go higher, while mortgage rates are unlikely to drop significantly.
Michael Gapen, the head of US economics at Bank of America, says there’s no quick fix for this situation. The main advice for new buyers is to be patient, despite the frustration.
During the COVID-19 pandemic, home prices spiked, and the Federal Reserve’s actions to combat inflation caused mortgage rates to soar. This combination has made it one of the most difficult times to buy a home.
The supply of homes can’t meet the demand, pushing prices up. In May, the median price for a pre-owned home in the US reached a record $419,300, a 6% increase from last year. Bank of America predicts prices will rise another 4.5% this year and 5% in 2025 before a slight dip in 2026.
One issue is the “lock-in effect.” Homeowners who got low mortgage rates during the pandemic don’t want to sell and face higher rates. This limits the number of homes available for sale. Gapen expects this effect to last another six to eight years.
Meanwhile, fewer homes are being built, and the housing market remains divided. Existing homeowners see their net worth increase, while potential buyers struggle. A recent Gallup poll shows only 21% of Americans think it’s a good time to buy a house.
If the US economy avoids a recession, home prices might rise even more. However, a recession could lead to lower prices and better affordability, though that’s not an ideal solution.
First-time buyers should stay hopeful and patient, as changes in the market will take time.