US home prices set to fall as rates rise, says Capital Economics

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(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.

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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.”

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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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