: BofA cuts home price growth to 0% for next 2-3 years, but still sees no major distress unfolding

by | Nov 7, 2022 | Stock Market

Record low affordability and a dearth of houses to buy have credit analysts at BofA Global cutting their outlook for U.S. home price growth to zero in 2023, while also warning that prices could stay flat through 2026. Home prices rose 2% to 5% annually since the 1980s, but now look likely to remain on hold for the next few years, the team said, pointing to the Federal Reserve signaling a willingness to “overshoot” in its fight to bring 8% annual inflation down to its 2% target.

“This implies a higher risk of a hard landing,” including unemployment reaching 5.6% by next year, the team of BofA residential credit analysts led by Pratik Gupta wrote, in a weekly client note. But they also argued that “this is no 2008,” in terms of foreshadowing a housing market collapse. For one thing, the BofA team said housing affordability was nearing 2006 levels, after two years of skyrocketing prices and the 30-year fixed mortgage rate now hovering near 7%. But they pegged the ratio of payments on new mortgages to income around 37% (see chart), or well below the near 60% level in the 1980s.

Mortgage payments are rising with rates and home prices, but they aren’t as high as in the 1980s as a ratio of income.

BofA Global, Census data, FHFA

Of note, with new mortgage rules put in place in the wake of widespread abuse uncovered after the 2007-’08 global financial crisis, lenders now must make a good-faith effort to determine whether a borrower can actually afford a new mortgage. Another positive of the housing market includes about 95% of the mortgage market now having a coupon of less than 5% …

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