Limited supply will cause U.S. home prices to rise faster this year than previously expected, according to analysts polled by Reuters.

Among 28 polled analysts, the median prediction comes to a 5% increase in the average home price in 2024. For perspective, last year home prices grew 6%.

“As of now, roughly half of the U.S. has locked in fixed-mortgage rates of under 4%, and that should keep supply stable so housing affordability is still tough,” said John LaForge, head of asset strategy at Wells Fargo Investment Institute.

These analysts also forecast that the supply of affordable housing will be below expected levels of demand over the coming years.

”Your best bet for a trigger that might help affordability over the next year is interest rates,” LaFroge said. “But frankly, it doesn’t look like we’re getting those four to five or six rate cuts from the Fed most economists thought earlier.”

Good news on the horizon?

Despite the predicted 5% rise in home prices for 2024, the outlook for the years ahead is more optimistic.

The analysts polled by Reuters see a 3.3% increase in 2025 and a 3.5% increase in 2026—only modest increases compared with 2023 and 2024.

The reason behind the predicted slowdown is mortgage rates, which have already peaked, according to National Association of Realtors forecasts.

”I believe we’ve already reached the peak in terms of interest rates,” said Laweence Yun, NAR’s chief economist.

Yun added that rates “should return to 5.5 or 6%” within two years — assuming the federal budget deficit does not put permanent pressure on all borrowing costs.

“As homeowners slowly acclimatize to higher mortgage rates, more affordable second-hand home supply will come on to the market,” said Thomas Ryan, U.S. property economist at Capital Economics. “But we anticipate this will only be a trickle rather than a flood.”

More affordable homes needed

22 of the 24 Reuters analysts surveyed see the pace of affordable homes falling far short of demand in the coming two or three years.

Despite a 9% rise in housing availability last month—the highest the market has seen since October 2021— it's a far cry from the overwhelming demand.

Analysts indicate supply should reach 1.8 million units per month to fill the demand—a number not seen since April 2019, months before the pandemic.

“Mortgage rates are a piece of the puzzle, but at a fundamental level, even when mortgage rates were low, it was hard to buy a home for the first time because there simply aren’t enough of them,” said Alex Horowitz, the director of Pew’s Housing Policy Initiative.

Analysts typically like to see five to six months of housing supply to balance out the market, but it's currently at 3.2 months.

That’s an improvement over the record low of 1.6 months recently seen, but it's not nearly enough.