The housing market may be about to get even more unaffordable as home prices are set to spike 6% in 2023 and 7% in 2024, think tank says

• The housing market is about to get even more unaffordable as the cost of buying a home jumps.
• Home prices could spike 6% this year and 7% in 2024, the AEI Housing Center estimated.

The US housing market is about to get even more unaffordable, as home prices will likely continue their uptrend over the next few years, according to the American Enterprise Institute Housing Center.

The Washington DC-based think-tank pointed to recent acceleration in housing costs, with home prices rising 2.9% year over year in June, up from the 2.1% annual increase in the prior month.

Prices are likely to heat up even more, the AEI said in its latest Housing Market Indicators report, estimating home prices would rise 4% in July from a year ago. Home prices will surge 6% overall in 2023, and 7% overall in 2024, according to AEI's base-case scenario.

"This is largely due to historically low supply, cooling yet still strong job numbers, low levels of foreclosures in most areas of the country, work from home, and continuing home price arbitrage opportunities," AEI added in its report on Tuesday.

Homebuyers are already navigating the most unaffordable housing market in history, according to the Mortgage Bankers Association.

Prices have jumped 44% from levels before than pandemic, meaning over 75% of properties on the market are now too expensive for the middle class, per a recent report from the National Association of Realtors and Realtors.com

High mortgage rates have slammed buyers by raising the cost of borrowing and worsening the supply-demand imbalance in the market, which has propped up home prices up over the last year.

Experts say affordability won't improve until mortgage rates pull back more significantly, and that likely isn't happening anytime soon. Rates are set to fall to just 6% by the end of the year, Redfin's deputy chief economist told Insider, though industry veterans say rates will need to fall to around 5% to unlock more inventory and put downward pressure on home prices.