Rates nearing "the threshold which house price falls become likely," says Capital Economics
The US housing market is expected to see its prices drop as mortgage rates continue to climb, said economic research firm Capital Economics in a report published by Bloomberg.
Experts at Capital Economics previously argued that a mortgage rate of above 6% “represents the threshold at which house price falls become likely.” With rates closing in on that 6% mark, Matthew Pointon, senior property economist at Capital Economics, said property prices could contract an annual 5% by the middle of 2023. His previous reports projected no change in values by that time.
Pointon added that an average buyer with plans to purchase a home for the median price will now have to allocate more than a quarter of their annual income toward mortgage payments, surpassing the average 24% reported in the mid-2000s.
“That deterioration in affordability will shut many potential buyers out of the market,” said Pointon. “That will reduce the competition for homes, and sellers will eventually see the need to accept a lower price for their property.”
The Federal Reserve’s efforts to curb inflation is expected to squeeze housing market activity even more, though prices have stood firm so far, said Bloomberg. According to Capital Economics, the continued rise of rates could see property values rebound to an annual gain of 3% by the end of 2024.
