High mortgage borrowing costs and elevated home values are expected to keep U.S. residential real estate activity low through this year and next, according to property specialists surveyed in a June 1-11 poll. The panel forecast only modest increases in average prices even as transactions remain constrained.
The 30-year mortgage rate - the key benchmark for most U.S. home loans - has been roughly 6.6% in recent months, markedly above the roughly 4.3% average recorded over the prior decade. Median projections from the June 1-11 survey put the 30-year mortgage rate at 6.4% in the next quarter and 6.3% in the fourth quarter. On a multi-year horizon, respondents expect the rate to average above 6.0% through 2028, about 25 basis points higher than in a survey taken three months earlier.
Those rate expectations are consistent with a separate poll of economists in which the Federal Reserve was no longer expected to cut interest rates this year, while financial markets were pricing in a potential hike in December. Taken together, those outlooks suggest a narrower pathway for the kind of rate-driven stimulus that could revive housing activity.
Price forecasts in the June 1-11 survey were modest. The S&P Cotality Case-Shiller 20-City Index was projected to rise 1.2% this year - a slower pace than last year’s 14-year low increase of 1.4% - and to gain 2.0% next year. Those projections are weaker than forecasts made in March and are well below U.S. inflation.
Affordability is central to the constrained outlook. "We’ve gotten to a point where it is becoming increasingly challenging for the typical American to get on the housing ladder," said James Knightley, chief international economist at ING. He highlighted that the average mortgage for a home purchase is about $460,000, which translates to nearly $3,000 per month - more than 50% of the median after-tax pay of the average American. That dynamic, he said, helps explain a near-record lull in transactions.
Existing home sales - which account for roughly 90% of total transactions - were forecast by poll respondents to hold steady at an annualized 4.1 million-unit rate over the current and next quarter, before nudging up to slightly below 4.2 million in the final quarter of the year. Those levels are well under the early 2021 peak of 6.6 million.
Mortgage rates have risen by about 50 basis points since late February, a move linked in the poll to geopolitical developments in the Middle East and the associated spike in Treasury yields. Respondents noted that the climb in benchmark 10-year Treasury yields reflected concerns that higher energy prices would feed through into consumer price inflation, which hit an annual 4.2% rate in May.
High mortgage rates and elevated home prices were identified as the top obstacles for first-time buyers. Nearly two-thirds of analysts in the poll - 12 of 19 respondents - said purchasing affordability would worsen over the coming year.
Average U.S. home prices are now roughly 55% above their pre-pandemic levels, outpacing income gains in the same period. That gap between prices and incomes was cited by respondents as one of the structural factors weighing on sales volumes.
"We expect the market to remain fairly depressed for much of this year, simply because of affordability issues in most regions. Home prices are still pretty elevated across many regions in the U.S. - as are mortgage rates," said Sal Guatieri, senior economist at BMO Capital Markets. He added that the market’s relative tightness partly reflects the reluctance of existing owners to move while sitting on lower mortgage rates than those currently available.
Crystal Sunbury, senior real estate analyst at RSM, underscored how rate differentials deter mobility. "Maybe people are willing to give up that 3% mortgage rate for a 5% one - but they’re not necessarily willing to do that for a 6-6.5% mortgage," she said. Sunbury also noted that neither new construction nor existing home sales are likely to produce a meaningful increase in supply in the near term.
With transaction volumes near levels seen during the 2007-08 global financial crisis, respondents said the current market faces unusually strong affordability pressures. That combination of stubbornly high borrowing costs and price levels implies a prolonged period of subdued housing turnover unless there is a material shift in mortgage rates or buyer incomes.
Implications for markets and the broader economy
- Slower turnover in housing could limit activity in sectors tied to residential transactions, including mortgage lending, home improvement, and real estate services.
- Persistent affordability constraints may restrain housing-driven consumption and dampen local government revenues tied to property transactions.
- Financial markets pricing of Fed policy moves and Treasury yields appear central to near-term mortgage-rate trajectories, linking macro policy expectations to housing outcomes.