By Sarupya Ganguly

BENGALURU (Reuters) - Affordability in the U.S. housing market will improve modestly in the coming year, according to property market experts polled by Reuters, based on expectations for a few more interest rate cuts, not an increase in homes available to purchase. 

Home prices are set to keep rising modestly this year and next, in forecasts broadly unchanged from a November survey and suggest little has been done to alleviate relentless financial pressure on aspiring first-time buyers.

A 62% majority of respondents, 13 of 21, in a February 14-27 Reuters survey said purchasing affordability for first-time home buyers over the coming year would improve, compared with 53% three months ago who said it would worsen.

That was mostly down to an expected dip in 30-year mortgage rates from near 7% to an average 6.76% this year, and 6.32% next, poll medians showed.

"By various measures, U.S. housing affordability is still the worst in about four decades. While we will see some improvement in the coming year, it will still be a challenge, particularly for many first-time buyers, to get into the market," said Sal Guatieri, a senior economist at BMO Capital Markets.

"We expect home prices to continue rising, but at a more moderate rate than recently," Guatieri added. "This just reflects our view the housing market will slowly pick up as mortgage rates decline in response to anticipated Fed easing later this year and through next year."

President Donald Trump has announced a series of executive orders and sweeping policy changes over the past month in the White House.

But apart from expectations for a deregulation agenda, the administration is yet to announce any plans to address the lack of affordable homes.

In the meantime, U.S. home prices based on the S&P CoreLogic Case-Shiller composite index of 20 metropolitan areas were expected to rise 3.6% this year, median estimates from 27 property analysts showed.

Home prices were then predicted to go up 3.3% and 3.5% respectively, in the coming two years.

Part of this has to do with a persistent supply shortage, which has kept average U.S. home prices over 50% above pre-pandemic levels.

Over 500 basis points of Fed rate hikes in 2022-23 broadly did nothing to lower house prices.

The shortage of homes available to buy is partly driven by existing homeowners who secured historically rock-bottom mortgage rates during the pandemic and are reluctant to sell.

"Since such an overwhelming percentage of the outstanding mortgage market is fixed-rate, where borrowers were able to take out loans in 2020-21 with two- or three-handle rates, their incentive in this current environment is to keep their homes off the market," said James Egan, Morgan Stanley housing strategist.

"That's kept inventory very constrained and put upward pressure, and a holistic level of support, for home prices," said Egan, who doesn't expect affordability to improve drastically over the next year or two.

Asked what would rise faster over the coming year, a 55% majority, 11 of 20, said home prices over rents. Average rents will increase around 3% this year, according to the median estimate from a smaller sample of respondents.

Existing home sales, comprising over 90% of total sales, were expected to rise modestly until mid-year and rise to an annualised rate of 4.15 million and 4.23 million units, respectively, in the third and fourth quarters.

But those were downgrades from the previous survey and well below the 6.6 million units recorded in early 2021.

"Fundamental demand remains strong due to an estimated housing deficit of 2.6 million units providing a floor under house prices," said Cristian deRitis, deputy chief economist at Moody's Analytics.

((Other stories from the Q1 global Reuters housing poll))