Home Sales Heading Lower, Prices Higher, Bank of America Says
A lot of housing-market numbers don’t look good.
For example, the average rate for a 30-year fixed mortgage hit 4.16% in the week ended March 17. That’s the first time that figure has exceeded 4% since May 2019, according to Freddie Mac. Last August, the rate stood at just 2.77%.
The latest rate isn’t that high historically, but it’s likely to rise further as the Federal Reserve raises interest rates. That’s bad news for the housing market.
Home sales are headed lower, and home prices are headed higher, say Bank of America economists Alexander Lin and Jeseo Park.
Higher mortgage rates will push the National Association of Realtors Housing Affordability Index down at least 25% this year, they wrote in a commentary. “This shock argues for a pullback in existing home sales.”
Ukraine ‘Adds a New Factor’ to Housing Market
The war in Ukraine obviously won’t help. “The Russia-Ukraine conflict adds a new factor to the mix,” the economists said.
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“Higher oil and commodity prices will weigh on the consumer’s ability to spend elsewhere, increase uncertainty and recession concerns, and support higher input costs for builders.”
Tight home inventories also present a problem, the economists said. “Builders have been bogged down by chaotic supply chains, resulting in homes under construction exceeding annualized completions for the first time in history.”
Lin and Park expect existing home sales to drop 10% this year to 5.6 million. To be sure, they also expect new-home sales to rebound 4% to 800,000, “given pent-up demand from the supply imbalance.”
The tight supply means higher prices, the economists said. They anticipate home prices will jump 10% in 2022. Last year, the S&P CoreLogic Case-Shiller Home Price Index, surged 18.8%.
The economists also addressed the issue of whether it’s better to rent or buy in this market. Both choices are growing more expensive, but mortgage payments are still cheaper, they said.
“That said, affordability from a home price/down payment perspective is the worst it’s ever been, meaning extreme barriers to entry.”
