Key facts
- U.S. mortgage rates are expected to remain higher than previously forecast, declining only modestly over coming quarters.
- The average 30-year mortgage rate has risen to about 6.85% since late February.
- Housing analysts predict mortgage rates to average 6.60% and 6.52% over the next two quarters.
- Average home prices are forecast to rise 1.5% this year.
- Existing home sales are forecast to average an annualized 4.0 million-unit rate this quarter and next.
- A shortage of housing stock is seen as an underlying problem, particularly for first-time and lower-income buyers.
U.S. mortgage rates are expected to remain elevated and decline only modestly over the coming quarters, according to a Reuters poll of property experts. This forecast suggests that home price growth will remain muted through next year, and government efforts to revive the housing market may be less effective than hoped.
The average 30-year mortgage rate, a key indicator for U.S. home loans, has increased by approximately 70 basis points to around 6.85% since late February, tracking the rise in the benchmark U.S. 10-year Treasury yield. Housing analysts polled between August 28 and September 14 predicted average mortgage rates of 6.60% and 6.52% for the next two quarters, revised upward from previous forecasts of 6.30% and 6.24% in June.
Forecasters have had to revise their projections for declining mortgage rates higher in 12 of the last 19 quarterly surveys since the start of 2022, indicating that a housing market revival driven by lower rates may be more distant than anticipated. Crystal Sunbury, senior real estate analyst at RSM, noted that long-term yields are being influenced more by federal borrowing needs, inflation expectations, and term premium than by Federal Reserve policy rates. She added that housing activity has limited capacity to absorb further rate increases, with affordability pressures intensifying and transaction volumes likely to weaken further if rates remain above roughly 6.5-7.0%.
Average home prices, as measured by the S&P Cotality Case-Shiller 20-City Index, are forecast to increase by 1.5% this year, barely outpacing last year's low of 1.4%. Existing home sales, which constitute 85-90% of total transactions, are projected to average an annualized rate of 4.0 million units this quarter and next, rising to 4.1 million in the first quarter of 2027, significantly below the near 15-year peak of 6.6 million in early 2021. Home price increases have far outpaced income growth since the pre-pandemic period, straining affordability for many first-time buyers.
Gary Schlossberg, global strategist for Wells Fargo Investment Institute, highlighted that beyond affordability pressures, a fundamental problem is the shortage of housing stock, which has been aggravated by incentives favoring the upper end of the market. The 21st Century ROAD to Housing Act, recently passed with bipartisan agreement, aims to address this by speeding up construction and boosting the supply of affordable homes.