- Existing home prices should keep climbing when mortgage rates slide, Bank of America said.
- There is not enough supply to meet the demand of buyers returning to market.
- But single-family home inventory is picking up, and homebuilder sentiment is rising.
Lower mortgage rates will bring buyers back to the market, but any uptick in inventory from sellers opting to list their homes probably won't be enough the meet demand and keep prices from rising further, Bank of America says.
The number of existing home sales on offer fell last year as mortgage rates rose and sellers opted to wait it out to hold onto lower rates they locked in years ago. As homeowners sat it out in 2023, existing home prices diverged from those of newly constructed homes.
"The median home price for existing homes continued to soar through the roof in 2023, while the opposite occurred in the new home market," the note said. "As of January, the median sales price of existing single-family homes had grown 5% y/y, while the price for new single-family homes fell 3% y/y."
Existing home sales finished last year at the lowest level since Bank of America began covering the data.
So far in 2024, mortgage rates have come down from multi-year highs seen last October, falling to 6.74% this month. It's already been enough to bring back some home sellers, with new listings jumping 14.8% on an annual basis last month, Redfin reported.
Still, the market's lack of supply meant that prices rose 6.6% year-over-year, though that figure doesn't necessarily distinguish between existing and new sales.
According to Bank of America, this isn't to say affordability can't improve this year. January's existing home sales were the highest since August, and even small declines in mortgage rates are enough to encourage bursts of activity.
Still, the biggest factor will be improvements to supply, with homebuilders having to lead efforts, the bank said.
"On the bright side, inventory levels for single family homes have been picking up and home builders' confidence has risen. The January reading on homebuilders' sentiment was the highest level since August," the note said. "Although levels of activity aren't as robust as they were pre-pandemic, we expect the housing market to gradually find a new equilibrium once the Fed begins to cut interest rates this year."
Recently, Zillow Chief Economist Skylar Olsen told CNBC that the US market's housing shortfall could be as much as 4 million, when accounting for those who are financially forced to live with non-relatives.