Stocks rise as key Fed-watched inflation data keeps cooling

The housing market’s biggest challenge isn’t going away anytime soon.

Economists at Bank of America warned that the housing market will remain “stuck in the mud, and unlikely to become unstuck” until 2026 as the supply of homes for sales remains near record lows.

The so-called “lock-in” effect for homeowners who secured ultra-cheap mortgages when rates were low during the pandemic has caused owners to stay put.

The investment bank believes the impacts of this could last 6 to 8 years, keeping a lid housing activity down and, in turn, residential investment that feeds into the GDP calculation.

High interest rates have majorly impacted homeownership.

Mortgage rates remain hovering around 7% despite the recent pullback in borrowing costs, keeping supply low and pushing prices higher for homes that do trade hands.

Home prices hit a new record in April, though annual growth slowed from the previous month, according to the latest data available from Case-Shiller. Bank of America expects home prices to grow by about 4.5% this year, 5.0% next year, and 0.5% in 2026.

“Home prices have already overshot their long-run fundamental value based on disposable income,” Michael Gapen, an economist at Bank of America, wrote in a note to clients Friday.

“Second, our outlook for the economy calls for continued normalization as the effects of the pandemic move further into the rearview mirror. The structural shift in housing demand that lifted home prices should fade over time. That said, we think it unlikely that home prices fall much.”