The current state of America’s housing market is cause for concern, with affordability reaching its lowest point in years and little hope for improvement in the near future. Capital Economics has expressed pessimism about the housing market’s prospects, citing various factors contributing to the lack of a clear path to recovery.
Firstly, mortgage rates are projected to remain above 6.5% throughout the year, as the Federal Reserve is not anticipated to lower rates until 2026. These high rates are hindering potential buyers by keeping monthly payments elevated.
Additionally, the perception of it being a favorable time to purchase a home is at an all-time low, largely due to record-high home prices, limited supply, and high borrowing costs. Although more homes are being listed, the overall supply remains insufficient to meet demand.
Existing home sales are expected to be lackluster, falling well below pre-pandemic levels in both 2026 and 2027, with no significant recovery in sight until affordability improves. This lack of activity is also impacting first-time buyers, who are facing the most challenging conditions in decades.
Homebuilders are struggling to maintain sales, resorting to price cuts and incentives to offset rising construction costs. The rental market, on the other hand, is experiencing increased demand as homeownership becomes less feasible for many, particularly younger adults.
In summary, the housing market is facing significant challenges with no immediate solutions in sight, creating a gloomy outlook for the foreseeable future.
Following a period of modest increases, rent growth is expected to reach 2% in 2025 and 3.5% in 2026. The pace of multifamily construction is decreasing significantly, with new projects projected to slowly increase to 430,000 by 2027, a figure well below the surge seen after the pandemic. The outlook suggests that there is no quick solution to the housing challenges ahead. Affordability will continue to be strained for the foreseeable future, with no clear catalyst for a price adjustment. Home sales are expected to remain subdued until mortgage rates decline and incomes improve. In this environment, landlords are poised to benefit, as they will have the opportunity to raise rents due to the tight market conditions. Capital Economics predicts rent growth of 2% in 2025 and 3.5% in 2026. Overall, the U.S. housing market is anticipated to experience a slow and gradual recovery, with buyers encountering ongoing affordability obstacles and rents increasing due to limited availability of homes for sale. This information was generated with the assistance of AI technology and verified for accuracy by an editor before being published on Fortune.com.
