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Reuters poll shows US home prices falling less than expected despite high borrowing costs

BENGALURU, May 31 (Reuters) – US house prices are set to fall less than previously expected this year before flattening out in 2024, according to real estate analysts polled by Reuters, despite broad expectations that interest rates will stay higher for longer.

Despite the Federal Reserve embarking on the most aggressive tightening cycle in four decades, average house prices are down a little over 5% from their recent highs, hardly a slowdown compared to the 45% surge during the COVID-19 pandemic.

Much of this resilience in one of the most interest rate-sensitive sectors of the economy has been driven by persistently tight housing supplies, which were not expected to ease for at least the next six months.

A May 15-30 survey of 30 real estate analysts found that house prices, which resumed their rise in March after eight months of decline, will fall by an average of 2.8% this calendar year. That’s less than the 4.5% decline forecast in March.

Average house prices, as measured by the S&P CoreLogic Case-Shiller composite index of 20 metro areas, were forecast to be flat next year.

The projected 9% peak-to-trough decline is less than a third of the plunge during the 2007-2008 global financial crisis, leaving prices well out of reach for would-be homeowners.

“Looking ahead, we think prices can go down a bit more. Affordability is still tight and a slowing economy will weigh on homebuyer sentiment,” said Sam Hall, real estate economist at consultancy Capital Economics.

“With supply expected to remain tight, there is a risk that property prices will not fall as much as we previously anticipated.”

Soaring house prices and high consumer inflation suggest that the Fed, which raised its benchmark interest rate to 5.00-5.25% from near zero in early 2022, will maintain it at least until late 2023 to keep upward pressure on mortgage rates .

The interest rate on 30-year fixed-rate mortgages, currently around 6.7%, is projected to average 6.2% in 2023. It is expected to drop to 5.5% in 2024 as the Fed is expected to cut rates then.

These high mortgage rates are constraining housing supply, putting upward pressure on prices and demand.

“Although mortgage rates have more than doubled since 2021, homeowners have not been forced to sell because most have jobs, and many are reluctant to sell the property because they have a cheap long-term mortgage deal,” he said Sal Guatieri, Senior Economist at BMO Capital Markets.

Existing home sales currently stand at 4.28 million annualized units — significantly down from the January 2021 peak of 6.56 million — and are expected to stay around that level.

Just over 70% of respondents, 16 out of 22, said a significant fall in house prices was more likely than a recovery later in the year.

“If the Fed is forced to tighten further to curb inflation, the market could slip back down,” added BMO’s Guatieri.

(More stories from Reuters Quarterly Housing Market Surveys:)

Reporting by Indradip Ghosh and Prerana Bhat; Survey by Aditi Verma and Maneesh Kumar; Adaptation by Jonathan Cable, Ross Finley and Sharon Singleton

Our standards: The Thomson Reuters Trust Principles.

Indradip Ghosh

Thomson Reuters

Reports on the outlook for major economies and central bank policy, as well as financial markets including forex, bonds, real estate and stocks. Indradip previously worked as an equity research analyst at Zacks Research for three years. Indradip has a postgraduate degree in economics and is interested in discussing various topics related to economics, financial markets and politics.

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