(Bloomberg) — U.S. home prices are set to fall as mortgage rates above 6% undermine affordability for the average buyer, according to Capital Economics.
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Home prices could contract 5% a year by the middle of next year, senior real estate economist Matthew Pointon said in a research note on Monday. He had not previously expected any change in values at this time.
According to the report, an average household looking to buy a home at the median price will now have to spend more than a quarter of their annual income on mortgage payments. This exceeds the average of 24% observed in the mid-2000s.
“This deterioration in affordability will exclude many potential buyers from the market,” Pointon wrote. “It will reduce competition for homes, and sellers will eventually see the need to accept a lower price for their property.”
Actions taken by the Federal Reserve to control inflation have weighed on activity in the US housing market, although prices have remained firm so far. Capital Economics expects property values to rebound to a 3% annual gain by the end of 2024.
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