It's not going to get any easier to buy a house in the next 2 years, economist says
iStock; BI
- The housing affordability crisis will persist through 2026 due to rising home prices and higher mortgage rates.
- High mortgage rates are driven by Donald Trump's expected inflationary policies, limiting the Federal Reserve's rate cuts.
- Home prices are expected to rise 4% in 2025 and 2026, according to Capital Economics.
The housing market's ongoing affordability crisis might 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 — are 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 estimates that the average 30-year fixed mortgage rate will hover around 7% for much of 2025 and likely 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 during earlier in the fall.
Meanwhile, Ryan expects home prices to also continue their record surge. He forecasts 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 expects 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% believe it's a good time to buy, representing a marked drop from about the 70% level 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 said.
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