First American: Affordability Crunch Likely to Last Through 2024

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The affordability crunch plaguing home buyers is likely to persist through the end of 2024, First American says in its latest Real House Price Index report.

“At the beginning of the year, we predicted affordability may end 2024 modestly higher than at the end of 2023,” says Mark Fleming, chief economist for First American, in the report. “This forecast was based on the industry consensus at the time that mortgage rates would fall to 6.25 percent and house prices would slow to 3.7 percent by the end of 2024.

“Unfortunately, inflation has proven stubborn and led to the Federal Reserve’s ‘higher-for-longer’ stance on interest rates, contributing to an elevated outlook for mortgage rates, while house prices have once again demonstrated their ‘downside stickiness,’” Fleming says.

First American’s data show that, apart from the fall of 2023, affordability in May reached its lowest level in over three decades.

The good news is, it isn’t likely to get any worse.

“Assuming that mortgage rates fall to 6.7 percent by the end of 2024, household income grows at the pre-pandemic, 10-year historical average of 3.3 percent, and nominal house prices increase by 4.6 percent annually, then affordability as measured by the RHPI will end the year essentially flat compared to the end of 2023,” Fleming says.

“At this level, affordability will remain 45 percent worse than in February 2022, just before the Fed started increasing rates,” he adds. “While affordability is likely to remain constrained for the remainder of 2024, mortgage rates are expected to come down in 2025, which would be welcome news for potential home buyers.”

Photo: Blake Wheeler

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