Phoenix, Arizona – The housing market in Phoenix faces a significant challenge that is likely to persist for years to come, according to economists at Bank of America. The ongoing issue revolves around the limited supply of homes for sale, which is expected to keep the market stagnant until at least 2026.

One of the main factors contributing to this housing market dilemma is what experts refer to as the “lock-in” effect. Homeowners who were able to secure very low mortgage rates during the pandemic have been reluctant to sell their properties, leading to a lack of available homes on the market. This trend is anticipated to continue for the next 6 to 8 years, restraining housing activity and impacting residential investment levels, which in turn affect the overall GDP calculation.

Furthermore, high interest rates have significantly influenced homeownership in the Phoenix area. Mortgage rates have remained around 7%, despite recent fluctuations in borrowing costs. This has resulted in a limited housing supply, further driving up home prices for those properties that do become available for purchase.

Recent data from Case-Shiller shows that home prices reached a new record in April, although the annual growth rate did slow down compared to previous months. Bank of America predicts that home prices will continue to increase, with a growth rate of around 4.5% this year, 5.0% next year, and 0.5% in 2026. Economists at the investment bank caution that home prices have already surpassed their fundamental value based on disposable income, indicating a potential correction in the future.

In a note to clients, Michael Gapen, an economist at Bank of America, highlighted the potential for a shifting housing demand as the economy gradually recovers from the pandemic. While the current structural shift has boosted home prices, it is expected to diminish over time. Nevertheless, Gapen expressed skepticism about a significant decline in home prices in the near future.