The housing market's ongoing affordability crisis may not end next year or even in 2026.
Thomas Ryan, an economist at Capital Economics, said the two driving factors behind the housing affordability crisis — high prices and high mortgage rates — were likely to continue moving higher through the next two years.
"Conditions for would-be homebuyers and sellers will not improve much in the near term," Ryan said in a note on Tuesday.
Ryan estimated that the average 30-year fixed mortgage rate would hover around 7% for much of 2025 and probably not dip to 6% until the end of 2026.
That's because of President-elect Donald Trump's "inflationary policy agenda," Ryan said, which has caused markets to expect fewer interest rate cuts from the Federal Reserve.
According to Freddie Mac data, the average 30-year fixed mortgage rate was 6.81% last week, a significant jump from its 6.08% level about a month before the election.
The impact of the recent rebound in mortgage rates has already been felt in the housing market, with refinancing activity coming to a halt and home-purchase applications reversing the increases seen earlier in the fall.
Ryan said he expected home prices to also continue their record surge, forecasting a 4% increase in both 2025 and 2026.
If those price trends prove accurate, the median-priced house in America would cost about $455,000 in 2026, representing the highest level on record.
Broadly, Ryan said he expected the combination of steadily rising home prices and higher mortgage rates to result in the continuation of "strained affordability" for would-be homebuyers over the next two years.
The on-the-ground numbers are showing up in consumer-sentiment data, such as the University of Michigan's, which asks consumers whether they believe it's a good time to buy a home.
According to the most recent data, less than 20% said they believed it was a good time to buy, representing a marked drop from about 70% just before the COVID-19 pandemic began in 2020.
"With borrowing costs elevated, house prices at all-time highs, and inventory scarce, it is no wonder that households are downbeat about home buying," Ryan wrote.
This story was originally published in December 2024.
