Rising prices will prolong America's home-affordability crisis with 89% of the market still overvalued, Fitch says
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- Home prices are continuing to increase, prolonging America's affordability crisis, Fitch said.
- The ratings agency expects prices to rise between 3% to 5% in 2024.
- In the first quarter, 89% of US metro areas were overvalued, unchanged from the prior period.
Housing unaffordability will continue to frustrate buyers through the end of this year, as Fitch Ratings projects home prices to keep rising.
Though the recent uptick in property listings offers an early sign that the market is correcting, Fitch noted that obstacles stand in the way of cheaper housing.
"Challenges such as high mortgage rates and elevated home prices, which aggravate the affordability issue, continue to moderate the pace of this normalization," the ratings agency said in a new note on Tuesday.
Fitch expects nominal home prices to rise between 3% and 5% in 2024. Its latest report tracked data through the first quarter and found that prices had already increased 1.5%.
Appreciating prices would only compound affordability pressures in the market. According to Fitch, 89% of the country's metro areas are overvalued, a trend that has largely stayed consistent since the fourth quarter of 2022. This figure did surpass 90% in the second half of last year.
The national home price was overvalued by 11.5% in the first quarter, Fitch said, a slight rise from the previous quarter's 11.1%. That's due to accelerating price growth, while rent, unemployment, mortgage rates, and income remained largely stable.
57% of affected metros were overvalued by over 10% or more, it added.
Unaffordability has kept prospective buyers on the sidelines this summer, as June's median sale price jumped to a record $426,900, the National Association of Realtors found.
Many are staying back until mortgage rates fall, something that is expected to follow if the Federal Reserve cuts rates this September.
The 30-year fixed mortgage rate dropped to 6.49% last week, a meaningful low from 7% highs reached in May.
But Fitch has previously cautioned that lower interest rates may quicken the pace of price appreciation.
Recent commentary from "Shark Tank" star Barbara Corcoran supports this. The real-estate investor told Bloomberg that tremendous demand is waiting for rates to drop and may cause the market to become more expensive than it is now.
If mortgage rates fall to 6%, she expects home prices to jump as much as 10%.