U.S. home prices are forecast to rise 3.1% over the next 12 months, according to valuations firm Veros.
That’s down from the firm’s Q2 forecast of 3.2%.
The firm’s quarterly VeroFORECAST report evaluates home prices in over 300 of the nation’s largest housing markets and takes into account the interrelationships of numerous economic, housing, and geographic variables pertaining to home value.
The housing market is poised for modest appreciation over the next year amidst falling mortgage rates and increasing inventory, Veros says in its Q3 report.
While rising unemployment and concerns about economic uncertainty may slightly decrease demand, it is likely to be offset by the increased demand driven by lower mortgage rates, the firm says in its report.
Many potential buyers have been waiting for prices or rates to decline, and they may see this as an opportunity to enter the market. Additionally, demand remains supported by the large millennial and Gen Z generations entering homeownership age.
On the supply side, inventory levels are expected to remain relatively unchanged over the next year, Veros says.
Although inventory has steadily increased over the last year, it remains well below pre-pandemic levels. This is because many homeowners have mortgage rates below 4%, making it less likely for them to move.
To incentivize a significant number of people to move, mortgage rates would need to drop significantly. Even if many people do move, a large portion will also be in the market to buy a home. The housing market is facing a significant shortage of homes, and this supply constraint is unlikely to be resolved soon. High construction costs have hindered new home supply so far, but there is a possibility that this situation may improve.
Considering these supply and demand factors, home prices are not expected to deviate significantly from their current trajectory. While lower mortgage rates may alleviate the financing burden to some extent, high home prices are leading buyers to focus on more affordable areas.
Many cities in the Northeast and Midwest remain attractive options, combining job opportunities with desirable family-friendly environments, Veros says.
Additionally, the high cost of living in the sunbelt regions, including home insurance, HOA fees, and property taxes, is deterring many snowbirds and first-time homebuyers from moving to these regions.
Housing markets forecast to see the highest home price gains over the next year include Rochester, Buffalo, and Syracuse in New York; Rockford and Springfield in Illinois; Reading (PA); Manchester (NH); Akron (OH); Springfield (MA); and Hartford (CT).
Each of these markets is expected to grow between 5.9% and 7.6% over the next 12 months.
Housing markets forecast to see the weakest home price appreciation are in Texas and Florida.
Photo: Gustavo Zambelli