Housing Market: Sell Now or Wait? Bank of America Makes Prediction – Norada Real Estate Investments

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The pandemic-driven boost to housing prices is expected to last until at least 2026, according to Bank of America. A “For Sale” sign is posted in front of a home for sale in San Marino, California on September 6, 2023. For people considering selling their house, it might pay to wait a few more years.

Housing prices across the country have been rising at a rapid pace since the pandemic, increasing 6% on average in just the last year. With these rapid increases, homeowners can command a substantial price in today’s competitive housing market.

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But according to Bank of America, there’s still room for prices to go higher.

In a recent note, Chief US Economist Michael Gapen and his team revealed that they expect home prices to rise by 4.5% this year and 5% in 2025. Gapen doesn’t foresee the market cooling down until 2026 at the earliest. With this in mind, current homeowners can sell for even higher prices in the future.

Patience is a Virtue

There are several reasons homeowners should consider waiting to sell.

First, Gapen believes pandemic effects are still influencing the economy and won’t fully dissipate until the end of 2025. The pandemic caused significant shifts in housing trends, with increased remote work and migration to suburbs leading to a spike in housing demand, especially outside metropolitan areas. These trends are expected to continue, driving housing demand and pushing prices up further.

In addition to these long-term changes, inflation remains a factor. The pandemic’s economic disruptions led to widespread inflation, impacting everything from groceries to housing. As the economy adjusts, the housing market is expected to continue seeing upward pressure on prices.

Mortgage Rates

Mortgage rates are another consideration for prospective home sellers. Many homeowners took advantage of low rates during the pandemic and refinanced their mortgages for as low as 3%. With current mortgage rates hovering around 7%, it’s more favorable for existing homeowners to wait and continue benefiting from a lower effective mortgage rate.

Households are “locked-in” to their existing mortgages, according to Bank of America.

Although the Fed is expected to cut rates later this year, Bank of America doesn’t foresee mortgage rates falling much in the near future. In fact, the bank predicts that it could take anywhere between six to eight years for the gap between the effective and fixed mortgage rates to close. This creates an environment where it’s more beneficial for existing homeowners to stay put.

Market Dynamics

Market dynamics play a crucial role in the decision to sell a house. The current housing market is characterized by limited inventory and high demand, a combination that has driven prices up significantly. Many areas are experiencing bidding wars, with buyers willing to pay above asking prices to secure a home. This competitive environment can be enticing for sellers looking to maximize their returns.

However, it’s essential to consider that the market dynamics are influenced by several factors, including economic policies, demographic shifts, and broader economic conditions. For instance, the gradual recovery from the pandemic and changes in interest rates will impact housing demand and supply in the coming years.

Housing Prices Could Increase Beyond 2026

In this market, homeowners can take advantage of at least two more years of price appreciation. If pandemic effects do fade by the end of 2025, Gapen predicts that the housing market could cool to a rate of 0.5% growth by 2026. By then, less restrictive monetary policy, greater inventory of homes, and a stronger macroeconomic environment should open up the housing market and normalize home prices.

However, there’s a chance that prices could continue to expand well past 2026, too.

In the long run, home prices are closely correlated to growth in real personal disposable income. But according to the bank, “home prices tend to have strong inertia,” meaning that prices can continue to rise above fundamentals for prolonged periods of time before finally recalibrating.

For homeowners, this inertia means that there’s even more opportunity for price appreciation.

According to Gapen, in a scenario where pandemic effects fade slower than expected and the housing market exhibits high inertia, home prices could rise up to 5% in 2026.

Additionally, demographic shifts in upcoming years will provide a secular boost to housing demand as millennials reach homebuying age. Millennials now outnumber baby boomers and have overtaken them as the biggest group of homebuyers, according to the National Association of Realtors.

Given these circumstances, homeowners should be in no rush to sell.

Investment Potential

For those viewing their home as an investment, the current market conditions offer a unique opportunity. The potential for continued price growth means that homeowners could see substantial returns on their investment if they choose to hold onto their property for a few more years. With real estate being a significant component of many investment portfolios, understanding market trends and projections can help homeowners make informed decisions about when to sell.

Economic Indicators

Various economic indicators support the idea of waiting to sell. The overall health of the economy, employment rates, and consumer confidence all play a role in the housing market. As the economy continues to recover and grow, these factors are likely to contribute to ongoing demand for housing.

In summary, while the current housing market is robust and offers favorable conditions for sellers, waiting a few more years could yield even higher returns. With the anticipated continuation of pandemic-driven trends, demographic shifts, and economic factors, homeowners stand to benefit from holding onto their properties until at least 2026.


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