- Home prices may pick up speed after the Fed cuts rates next year, according to Fitch.
- The ratings agency see prices rising as much as 3% next year and up to 4% in 2025.
Home prices may pick up speed after the Federal Reserve cuts rates next year, Fitch Ratings said, offering little relief to an already-overvalued housing market.
In line with the central bank's own projections, Fitch expects the Federal Reserve to cut interest rates by 75 basis points in 2024.
Meanwhile, home prices are expected to move up 0%-3% next year, followed by a 2%-4% boost in 2025.
"This will continue to impact affordability, particularly for entry-level and first-time homebuyers, thereby constraining demand," Fitch said on Wednesday.
The projected increase in home prices would come as 88% of the metro areas in the US housing market were overvalued as of the second quarter, Fitch added.
That's little changed from 89% a year ago and up from 73% in the first quarter of last year. In addition the margin by which homes were overvalued widened. Fitch found that homes were 9.4% overvalued in this year's second quarter, up from 7.8% at the end of 2022.
Not everyone shares Fitch's price projections. For instance, Realtor.com sees lower mortgage rates slowing demand as buyers won't feel rushed to buy before rates rise further, resulting in a home-price dip of 1.7% in 2024.
Still, between high mortgage rates and rising home prices, the US housing market in 2023 was the least affordable on record, according to Redfin data going back to 2013.
That came as persistently high mortgage rates kept current homeowners largely off the market, worsening an already limited market supply. Some relief to this trend may come in 2024, as mortgages have already started slipping from highs of almost 8%.