The biggest challenge facing the real estate market isn't going away anytime soon.
Bank of America economists warned that the housing market will remain "stuck in the mud and unlikely to lift off" until 2026 as the supply of homes for sale remains near historic lows.
The so-called "lock-in" effect for homeowners who got ultra-cheap mortgages when rates were low during the pandemic has caused homeowners to stay put.
The investment bank believes the impacts of this could last between 6 and 8 years, keeping real estate activity low and, in turn, the residential investment that feeds the GDP calculation.
High interest rates have significantly impacted homeownership.
Mortgage rates continue to hover around 7% despite recent decline in borrowing costs, keep supply low and increase the prices of homes that are sold.
Home prices hit a new record in April, although annual growth slowed from the previous month, according to the Latest available data According to Case-Shiller, Bank of America expects home prices to rise by about 4.5% this year, 5.0% next year and 0.5% in 2026.
"House prices have already surpassed their long-term fundamental value based on disposable income," Michael Gapen, an economist at Bank of America, wrote in a note to clients on Friday.
"Second, our outlook for the economy indicates that normalization will continue as the effects of the pandemic recede in the rearview mirror. The structural shift in housing demand that drove up home prices should fade over time "That said, we think home prices are unlikely to fall much."
