Fitch Aligns with Fed’s Projected Interest Rate Cut
Fitch expects the Federal Reserve to reduce interest rates by 75 basis points in 2024, matching the central bank’s own projections. The ratings agency anticipates a 0%-3% increase in home prices for the 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,” stated Fitch on Wednesday, acknowledging the challenges this price surge poses for potential buyers. The housing market is already grappling with issues of affordability.
Continuous Overvaluation in Majority of Metro Areas
Fitch highlighted that as of the second quarter, 88% of metro areas in the US housing market were overvalued, which remains largely unchanged from the previous year (89%) and is up from the first quarter of last year (73%). In the second quarter of this year, homes were found to be overvalued by 9.4%, up from the 7.8% overvaluation at the end of 2022.
This persistent overvaluation may lead to a home-price dip of 1.7% in 2024, as per Realtor.com’s analysis. The lower mortgage rates are expected to slow demand, removing the urgency for buyers to make purchases before rates rise further.
Despite this potential dip, the US housing market remained historically unaffordable in 2023 due to high mortgage rates and rising home prices. Redfin data, dating back to 2013, revealed that the combination of these factors made the 2023 market the least affordable on record.
However, there might be some relief in 2024, as mortgage rates have already begun to decline from their recent peak of nearly 8%. This easing could encourage current homeowners to enter the market, thus improving the limited supply scenario.