Key Highlights:
- The U.S. house prices are expected to surge by 10%.
- The new homebuyers are already struggling with the affordability of real estate.
- The U.S. has underlying demand for houses with a limited house supply.
The Federal Reserve has hinted towards a rise in U.S. house prices. The rates may climb in double digits this year as there are expected series of interest rate hikes for another two years.
Last year, there were record low-interest rates and scarcity of homes to buy, alongside unexpected demand during the pandemic. This caused average house prices up to 17% in 2021 the strongest annual rise in at least two decades.
The pandemic also stretched the affordability of real estate for the new homebuyers. Due to the pandemic, the economy is already struggling to gradually come back to normal and central banks raise interest rates.
U.S. house prices rise
Earlier in February, a poll of analysts suggested that U.S. house prices will rise 10.3% this year. It was upgraded by 8.0% in December suggesting underlying demand for housing is still soaring with limited housing supply.
The price forecasts indicate that there might be a rise of 5% next year and 4.1% in 2021, comparing the marginal upgrades with 4% and 3.7% in the last poll. The predictions are based on the Case/Shiller index.
The invasion has affected the interest rates
The Russian invasion of Ukraine and the resulting conflict have influenced some caution into interest rate expectations. It could keep 30-year mortgage rates lower and might leave the near-term trend largely intact.
The head of independent consultancy Hunter Housing Economics, Brad Hunter, commented that the recent surge in the U.S. house prices is unsustainable and might experience under 8% house price inflation this year, following 4.1% in 2023.
He added, “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, a very little risk that home prices will decline in this cycle.”
