WASHINGTON, DC – First-time U.S. homebuyers face a problematic housing crisis as affordability becomes a burning issue due to tight housing supply and limited Federal Reserve interest rate cuts, according to a Reuters poll of property experts.
Another Reuters poll conducted Nov. 12-17 cites that while the rate of home price increases is slowing, prices remain over 50 percent higher than pre-pandemic levels, keeping many prospective buyers out of the market.
Public perception of purchasing affordability expectations has also altered significantly within the last few months, said Reuters, noting since a survey conducted in August, 10 of 19 respondents changed their minds about purchasing affordability, now believing that it will worsen rather than improve.
“Take the U.S. and a lot of the West – they’re getting older. That’s where the wealth is. They take on second homes, even third homes, pricing out younger generations who just haven’t had enough time to build up any savings,” said John LaForge, head of real asset strategy, Wells Fargo Investment Institute in the Reuters story.
“We continue to have these big overhangs – do you have the money for down payments? Do you have savings with the younger generation? I’d say we’re getting better, but we’re nowhere close to where we need to be,” LaForge added.
The “lack of entry-level homes, especially for families, is very evidently a barrier when we see that the median age of U.S. homebuyers has risen to 49, compared to 31 in 1981,” according to research from Apollo Global Management. The difference reflects challenges faced by younger buyers in saving for down payments.
Although home prices are forecast to grow at a slower pace, from 5.1 percent in 2023 to 3.2 percent in 2024 and 3.5 percent in 2026, home prices are not decreasing, meaning entry-level homes remain expensive, said Reuters, adding this continual rise, even at a slower pace, keeps homes out of reach for many first-time buyers already struggling for down payments.
High home prices have led many to continue renting, making up about one-third of all U.S. housing, and 70 percent of respondents, in a survey conducted by Reuters, believe rent inflation will remain steady or decrease over the next year. Two thirds of respondents agree that home prices are expected to rise faster than rents in the next year.
“We expect house price growth will continue to slow as low affordability forces more buyers out of the market. Sellers will have to adjust their expectations on price increases to sell their properties,” said Cristian deRitis, deputy chief economist at Moody’s Analytics.
Existing home sales will, according to the Reuters poll, to slightly increase to four million annually but remain far below the 2021 peak of 6.6 million with those polled noting limited interest rate cuts by the Federal Reserve will keep mortgage rates relatively high, with the 30-year rate projected to average 6.5 percent in 2024 and 6.3 percent by 2026.
According to Grace Zwemmer of Oxford Economics in the Reuters story, rising home prices and limited rate declines will make it harder for first-time buyers to enter the market, adding, “With home prices expected to continue to rise and mortgage rates declining less than we previously expected after Trump’s election, conditions for first-time buyers are likely to worsen.”
