Fleming noted that income growth is expected to moderate further in 2024 as the labor shortage narrows. At the same time, mortgage rates are projected to retreat from their peak of 7.6% in October 2023, with industry forecasts averaging around 6.25% by the end of 2024 as inflation recedes.
“If mortgage rates fall to 6.25% by the end of 2024, household income grows at the pre-pandemic historical average of 2.9% compared with the end of 2023, and nominal house prices increase by 3.7% annually, affordability will improve by a little over 3% at the end of the year compared with January. Even modest improvements in housing affordability will be welcome news for buyers currently sitting on the sidelines,” said Fleming. “However, even at this level, affordability will remain nearly 38% worse than in February 2022, just before the Fed started increasing rates.”
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While nominal house prices are expected to rise by 3.7% in 2024 due to persistent undersupply, Fleming said this is closer to the historical average after the sharp increases of recent years.
“The housing market remains undersupplied relative to demand, which puts upward pressure on prices,” he said.
Source: mpamag.com