In a recent report released this week, Bank of America economists have painted a grim picture for first-time homebuyers in the United States. The housing market is currently in a state of gridlock with no immediate relief in sight. According to Michael Gapen, head of US economics at Bank of America, the situation may not improve until 2026 — or later.
The main issues plaguing the housing market are high mortgage rates and soaring home prices. The supply of homes simply cannot keep up with the demand, causing prices to continue to rise. The median price of a previously owned US home hit a record of $419,300 in May, up 6% from the previous year.
One major factor contributing to the lack of supply is the “lock-in effect,” where existing homeowners are hesitant to sell their homes due to higher mortgage rates and increasing home prices. This has led to a limited inventory of existing homes on the market.
Dave Liniger, co-founder of real estate giant RE/MAX, stated that the move-up market is virtually non-existent, as homeowners are unable to take their low mortgage rates with them when upgrading to a new home. This has created a divide between those who have benefited from the spike in home prices and those who are unable to enter the housing market.
While a flood of new home supply would help alleviate the current gridlock in the housing market, Bank of America predicts that housing starts will remain flat for the foreseeable future. This, coupled with the ongoing “lock-in effect,” means that the housing market may remain stuck for years to come.
Despite the challenges facing first-time homebuyers, experts urge patience and perseverance. While the current state of the housing market may seem bleak, there is hope that a soft landing for the economy could lead to improved housing affordability in the future.
