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- Home prices could see another 5% surge in 2024, Capital Economics predicted.
- The research firm pointed to home inventory levels, which are still near historic lows.
- Low inventory has helped push home prices higher over the last year as demand remains hot.
Home prices could continue to climb this year, as the housing market isn't nearly as loose as prospective homebuyers may think, according to Capital Economics.
The research firm pointed to the recent uptick in housing inventory, with new listings on the market up 16% compared to levels last year. That's renewed some hope that home prices will eventually come down, or slow their pace of increases, but housing affordability is unlikely to improve, the firm said, forecasting another 5% surge in home prices this year.
While new listings show a greater number of homes hitting the market, active listings are still around 400,000 short of "normal" levels, Capital Economics estimated, which suggests that an imbalance of supply and demand is still weighing on affordability.
Mortgage rates also remain elevated, with the 30-year fixed rate clocking in at 6.8% the last week, according to Freddie Mac data. High rates have discouraged existing homeowners from listing their properties for sale — and the negative effect that has on inventory will likely continue, Capital Economics said, given that mortgage rates are only expected to ease to around 6.5% by the end of the year.
"We think that reports of a wave of new resale supply coming onto the market are overblown. While the number of homes being listed for sale has increased compared to last year, it is still low by historical standards, as mortgage rate 'lock-in' continues to curb the number of homes put up for sale. That supports our upbeat call on house prices this year," Thomas Ryan, the firm's property economist, said in a note on Tuesday.
If anything, the housing market looks even "tighter" than it was a year ago, Ryan added. While inventory remains in short supply, the demand for homes has grown hotter, with houses on the market selling three days faster on average than last year, according to Realtor.com data.
Home prices jumped 5.5% in 2023, thanks to a combination of high mortgage rates and low inventory levels. As of February 2024, home prices were already up 6.4% from levels recorded last year, with the median sales price of a home clocking in at over $412,000, according to Redfin.
"Ultimately the key to a full recovery in existing homes is much lower mortgage rates," Ryan said. "That tight supply paired with a recovery in buyer demand should keep competition for homes strong and support prices."
Other real estate economists have warned housing affordability won't significantly improve for at least the next few years. That's because it will take time to build enough inventory for supply and demand to balance out, experts told Business Insider.