Bank of America Warns US Housing Market to Remain 'Stuck' Until at Least 2026

In a recent report by Bank of America economists, it has been highlighted that the US housing market is facing significant challenges that may persist until at least 2026. The economists warned that high mortgage rates and soaring home prices are creating a situation where first-time homebuyers are finding it increasingly difficult to enter the market. The bank predicts that home prices will continue to rise, with a projected increase of 4.5% this year, followed by another 5% in 2025 before a slight dip of 0.5% in 2026. One of the key issues contributing to the housing market stagnation is the "lock-in effect" caused by homeowners holding onto historically low mortgage rates, making it financially unfeasible for them to sell and move to a new property with higher rates. This has led to a limited supply of existing homes on the market, further exacerbating the affordability crisis. The lack of movement in the market has also impacted potential first-time buyers, as starter homes have doubled in value, making it challenging for them to enter the market. The COVID-19 pandemic played a significant role in the housing market dynamics, with a surge in demand driven by low mortgage rates and a desire for more space. However, the subsequent increase in interest rates by the Federal Reserve has cooled the market, leading to a decline in sales. The Bank of America economists anticipate that it could take six to eight years for the lock-in effect to dissipate, further prolonging the housing market's recovery. Despite some expectations for a moderation in prices in the coming years, the overall outlook remains pessimistic, with affordability continuing to be a major concern. The report also suggests that a potential recession could be a catalyst for improving affordability in the housing market. As the housing market remains stuck in its current state, with limited prospects for significant improvement in the near future, the challenges faced by both buyers and sellers are expected to persist until at least 2026.