US home prices to fall less than expected, says economists

NEW YORK CITY, New York: Reuters has reported that US home prices are predicted to decline modestly this year, but less than previously forecasted due to demand falling only slightly below expectations as interest rates have risen further.

Home prices, which are usually sensitive to interest rates, only fell some 6 percent from their recent peak, but the Federal Reserve is expected to raise rates two more times, after increasing its key interest rate by 450 basis points from near-zero in only one year.

Following a surge of more than 45 percent in average house prices since 2020, with buyers aiming to avoid missing out, the fall in rates have not significantly affected the market.

However, people who could not afford to buy homes are being forced to pay higher rents.

Since October, mortgage rates had been steadily declining, but they started to rise again in recent weeks due to predictions that the Fed will keep its federal funds rate at high levels.

"Buyers are ready to get back into the market. However, volatile mortgage rates, which had dropped in January, encouraging sales activity, will continue to pose affordability challenges, limiting demand," said Crystal Sunbury, senior real estate analyst at US-based consulting firm RSM, as quoted by Reuters.

"House prices are expected to fall further, and an overall housing shortage will broadly support these historically-elevated levels," Sunbury added.

The 30-year fixed mortgage rate, currently at 6.5 percent, will average 6.35 percent this year.

Rents are also climbing, with rental price inflation averaging 2.1 percent this year and exceeding core inflation in 2024 and 2025.