Analysts polled from Feb. 27 to March 17 concluded that U.S. home prices will climb only modestly over the near term, constrained by mortgage rates that have settled near 6% and an ongoing shortfall of affordable housing that is expected to take years to close. The survey, released on Tuesday, indicated the housing market is unlikely to provide significant support to the broader U.S. economy this year.
Panelists projected home prices to increase 1.8% in the current year and 2.5% in 2027. Those gains sit well below a key inflation gauge used by the Federal Reserve to assess progress toward its 2% goal - the Personal Consumption Expenditures Price Index excluding food and energy - which registered 3.1% year over year in January, before the outbreak of the U.S. and Israeli war with Iran.
A widely followed 20-city composite home price index shows average prices have climbed more than 50% since the COVID-19 pandemic, but rose only 1.4% in the last year, the weakest annual increase in 14 years. Forecasts from the most recent poll were largely unchanged from the projections delivered three months earlier, even though the conflict has since pushed benchmark U.S. Treasury yields higher and boosted oil prices by about 50%.
"The story's one of the housing market basically not doing very much," said James Knightley, chief international economist at ING. "A squeeze on affordability has meant demand has dropped away significantly and supply is constrained as well, and I don’t see the prospect of an imminent turnaround." His assessment reflects two opposing forces: elevated borrowing costs that have damped buyer interest, and limited resale supply as homeowners choose to stay put.
Many homeowners remain reluctant to list their properties because selling would require giving up long-term mortgage rates obtained during the pandemic, many of which are less than half of the current roughly 6.2% average 30-year mortgage rate. That 30-year rate has edged up from about 6.1% in recent weeks.
On the transaction side, existing home sales - which account for about 90% of total market activity - were forecast to be steady at an annualized pace of 4.1 million units in the first quarter. Panelists expect a slight pickup to around 4.2 million units for each of the subsequent three quarters, substantially below the early-2021 peak of 6.6 million.
A weakening labor market is also expected to press on housing demand. Crystal Sunbury, a real estate senior analyst at RSM, said consumers now face fewer available jobs along with "an overall cautious sentiment in the economy, and now rising inflation again." "That creates a much more challenging environment for people to make a big purchase like a home," she added.
Shifts in expectations around Federal Reserve policy are likely to keep borrowing costs elevated. The panel suggested the Fed is increasingly likely to maintain interest rates at their current level for longer, citing discomfort with inflation that was already running above target before the war. Thirty-year mortgage rates are projected by respondents to average roughly 6.0% through 2028. Lawrence Yun, chief economist at the National Association of Realtors, warned that the rate could reach as high as 7.0% this year if the conflict with Iran persists.
Beyond financing, the supply side of the housing market remains a central constraint. When asked how many additional homes are needed to satisfy current demand, the median answer from 15 analysts was 2.5 million units. Most individual forecasts fell between 1.0 million and 4.7 million homes, while one respondent estimated a need of 10 million. Nearly 80% of respondents - 11 of 14 who answered that question - said it would take more than five years to close the shortfall.
Construction activity has risen modestly in recent months, but higher input costs are limiting the pace of new building. U.S. tariffs on imported raw materials were cited as a factor that increases homebuilding expenses. "Tariffs certainly act as a headwind," said Gary Schlossberg, global strategist at the Wells Fargo Investment Institute. "You’re dealing with higher construction costs, a shortage of labor and pressure on wages and construction." Those dynamics are weighing on the ability of supply to respond quickly to the deficit in available homes.
Overall, the panel's view points to a housing market characterized by slow price appreciation, constrained transactions, and a long timeline before supply and demand reach balance. With mortgage rates likely to remain elevated and affordability squeezed, housing is set to be a muted contributor to near-term economic growth unless conditions change materially.