Housing Market Predictions for Next 5 Years
Here's what some of the experts predict will happen in the housing market in the next five years. Some economists are more hopeful, but even those who predicted price increases through 2023 are changing their tune. For example, Freddie Mac's October forecast indicates 0.2% price decreases in 2023, a change from the previous quarter's estimate of 4% price increases.
Experts are concerned about red flags in the housing market as the Fed attempts to keep inflation under control. Nobody knows how severe the correction will be, but economists are keeping an eye on the unpredictability of the housing market and aren't happy with what they're seeing so far. According to Zillow, the current typical value of homes in the United States is $357,589.
United States home values have gone up 13.5% over the last twelve months and are predicted to rise by 1.2% by October 2023. Home values remained nearly flat from September to October (+0.1%), as buyers and sellers potentially settled on a new market equilibrium. The housing market forecast remained generally unchanged in October, as the housing market continued to slow amid rising mortgage rates and broader economic uncertainty.
Zillow projects home values remain flat through the end of the year, and increase by 1.2% in the twelve months ending October 2023. Many sellers are waiting for the market to cool down, at least evidenced by the flow of new for-sale listings hitting the market, now down 23.9% from last year’s flow.
Fewer homes are being listed for sale, which may force more listings to reduce their prices to match decreasing housing demand. These long-term housing predictions may change as the housing market rebalances and faces headwinds. Buyers and sellers face rising and fluctuating mortgage rates. Demand is capped and prices are lowered by affordability barriers at record highs. New listings are lower than a year earlier, supporting prices but limiting sales. As year-end approaches, the housing market faces considerable downside risks.
- Zillow expects home value growth to continue to slow over the coming months.
- Zillow’s home sales forecast now calls for 5.2 million existing home sales in the calendar year 2022.
- This forecast is up slightly from last month’s expectations for 5.1 million sales.
- The forecast is up following a better-than-expected reading on home sales in August.
- However, the housing market predictions for 2023 and the long term are bleaker.
- The recent reductions in mortgage applications and pending house sales indicate significant negative risks to home sales volume through 2023.
- Las Vegas (-2.3%) and Austin (-2.2%) saw the sharpest home value declines in October.
Also Read: Latest U.S. Housing Market Report
National home values were still rising by double digits over the previous year, but at a much slower rate than in the spring. Affordability constraints have triggered a power rebalancing in the housing market. Home sales are predicted to stay lower than in recent years – at least for the near future predictions. Year-over-year home price growth slowed in the third quarter as mortgage rates rose sharply, resulting in worsening housing affordability.
With mortgage rates still rising (at 7.08 percent as of this writing), resulting in rapidly declining home purchase demand, home prices are expected to fall further in the near term. Some housing markets are on the verge of a drop in home values within the next 12 months. Home prices are expected to dip over the next 12 to 18 months before stabilizing and then recovering, according to experts. Overall the predictions for the next five years are that home price appreciation is likely to range between 15 and 25%, but they will be uneven.
A drop in demand due to rising mortgage rates causes homes to stay on the market longer and slows price increases. Many would-be sellers are tied to low rates, making the switch to a more expensive mortgage difficult, and reducing inventories. This rebalancing gives wealthy purchasers more time to make decisions, less competition, and greater negotiation leverage than in recent years.
The forecast for 5.2 million existing home sales in 2022, also reflects recent market changes and continued weakness in leading indicators of the metric. Homebuyers continued to be deterred by mortgage affordability problems, resulting in less competition and a larger supply of available houses. Since last year, the housing market has cooled dramatically, and homes are now staying on the market for much longer, whether they sell or not.
Days on Zillow – a measure of the median amount of time a for-sale listing has been on the market – was 54 days as of the week of October 16, up from the series' lowest-ever recorded figure of just 19 days in early April and 38 days in the same week in 2021. At this rate, Days on Zillow will likely reach 68 by the end of the year, ten days higher than it was at the end of 2021.
However, this expected level would still be significantly below pre-pandemic time on the market, demonstrating that some market competition exists, even as purchasers drawback in the face of affordability issues, owing in part to a slow influx of new for-sale listings. The pace of buying has slowed as well. The share of inventory that has been on the market for at least 60 days rose to 46% in mid-October.
As rates, and thus mortgage payments, stay high, many potential buyers are being priced out of the market, and affordability will likely not be on their side any time soon. Sellers who list their home today could expect it to be on the market until Christmas, which is about two weeks later than what would have been predicted last year. While this may appear to be a long predicted wait in comparison to last year's inferno-hot circumstances, it's crucial to note that this time on the market is still far below pre-pandemic standards.
Housing Market Forecast 2024, 2025, 2026
There is an abundance of speculation regarding the forecast of the housing market in 2023. However, what about the real estate forecasts for 2023, 2025, and so on? Although, it is quite difficult to forecast the housing market for the next five years here is an insight into what most experts predict can happen.
Mortgage rates are at their highest point in 20 years, which is having a chilling effect on the housing market and driving down prices. But as supply remains constrained, housing prices in many U.S. markets have not yet begun to level off. Some experts have predicted the future of the housing market over the next five years. Only an oversupply can cause a crash.
The housing shortfall will last another year, with supply eventually catching up with demand by five years. The seller's market will persist as long as home inventory stays low. By five years, it is predicted to become a balanced housing market in which neither buyer nor seller has a monopoly. Instead, negotiation power between parties will be more equal and will vary depending on the circumstances.
Chief economist for the National Association of Realtors Lawrence Yun believes we are likely to see total price growth across the country of between 15% – 25% over the next five years. This forecast is likely to manifest as a decline in the coming year, a plateau in 2024, and then a period of relatively robust growth.
According to Greg McBride, the chief financial analyst at Bankrate, over the next five years, the US housing market is predicted to generate an average annual return in the mid to low single digits. In the long term, we are aware that real estate provides consistent returns above the rate of inflation. The longer the time frame, the more certain we can be about the general direction of travel, which has historically been upward in the real estate market.
According to Goldman Sachs, home prices in the United States will fall 5 to 10% over the next year. According to the same Goldman Sachs research, the housing market will bottom out in late 2023. Prices are projected to level off and remain relatively stable until mid-2024, so a turnaround is not anticipated to occur quickly.
Strong household finances and a relative lack of available homes in the United States could cushion a slowdown in the housing market. The economists believe it is unlikely that there will be a large wave of forced sales in the United States because a recession would likely be mild, the housing market is tight, mortgage quality is high, and the majority of mortgages have a fixed interest rate.
30-year fixed rate mortgage will remain around seven percent for the rest of 2022 and most of 2023. Assuming no major shocks occur, we should see rates of 5.5–6% within the next two years. Despite the fact that the residential real estate market has been exhibiting bubble-like characteristics, most experts do not anticipate a housing market crash. However, housing slowdowns brought on by rising mortgage rates have a tendency to weigh on GDP by reducing residential investment and weakening consumption.
The Zillow home price expectations survey found that the housing market is likely to become a buyer's market by 2023. The panel also predicts rent growth to outpace inflation during the next 12 months, as priced-out potential home buyers exert additional pressure on the rental market.
When will the housing market turn into a buyer's market, according to the panel?
- The majority of panelists (56%) forecast a big shift in favor of buyers within the next year (sometime in 2023).
- All 107 survey respondents project home price deceleration in 2023.
- The share of panelists who believe their long-term outlook might be too optimistic jumped up to 67% from 56% last quarter.
- Another 24% predicted that the housing market shift would come in 2024.
- 13% expect the market to favor home buyers in 2025.
- While just 8% expect that to happen by sometime in 2026 or sometime in the next five years.
- Metros in the South and Midwest are the least likely to see price declines over the next year.
- Vacation market areas are most likely to see price declines.
- Rent growth and inflation should outpace stocks and home price appreciation over the next year.
Housing Markets Which Are Predicted to See a Decline in Home Prices
Prospective buyers are finally seeing a calmer market after the frantic rush for real estate over the last two years. Those who can still afford to own a home are quickly regaining lost leverage, but the transition to a more balanced market is still in its early stages. Home buyers priced out of the market face additional challenges, as high and rising rents may reduce their ability to save for a down payment even further.
According to survey respondents, the inexpensive Midwest markets that are least likely to see home price declines over the next 12 months are Columbus, Indianapolis, and Minneapolis, with only 36% reporting that home price declines from current levels were likely over the next 12 months. A majority of panelists expect fast-growing Southern markets like Atlanta, Nashville, and Charlotte to keep their hot streak going, with 44% predicting declines.
Markets expected to cool the fastest — with 77% of respondents expecting declines — are those that experienced the most growth during the pandemic, such as Boise, Austin, and Raleigh. The panel expects suburban and exurban areas to retain their heat over the next 12 months, while vacation and urban areas are expected to see price declines.
Rent growth should remain strong in the short term as high home prices keep many would-be first-time buyers in the rental market. Over the next 12 months, rents are expected to grow more than inflation, stocks, and home values. The panelists predict an average of 5.4% rent growth throughout 2023 – lower than the 8.6% annual growth they expect to see by the end of this year, but still higher than what Zillow data show to be just under 4% annual growth in the years prior to the pandemic.
Real Estate Forecast Next 5 Years
According to some experts, the real estate forecast for the next 5 years shows that it will be a balanced market. Despite declining buyers' optimism that now is a good time to buy a house, the number of households interested in becoming homeowners remains high. This is especially true for younger homebuyers, who are likely first-time buyers and are struggling to save for a down payment as rents continue to reach record highs.
Simultaneously, seller expectations for larger down payments appear to be increasing, fueled by a still-competitive housing market and repeat buyers with relatively more available equity. The housing market is unlikely to shift from a seller's to a buyer's market anytime soon. Rising mortgage rates may take some of the steam out of the market, allowing inventory to rise slightly. It would also slow the rate of home price appreciation and reduce the possibility of a red-hot housing market resulting in an overheated market.
The supply of available homes is so low that even a significant drop in demand due to higher interest rates will not turn this into a buyer's real estate market, according to industry experts. Because there are not enough houses available to meet demand, home prices will continue to rise, but the combination of rising home prices and elevated mortgage rates means fewer people will be able to afford to buy.
There would still be continuous price appreciation, scarcity of inventory, and good demand. Some markets will experience lower appreciation rates than others, with the Sunbelt performing particularly well. Home prices do not appear to be decreasing, even in some of the country's most expensive markets, the tier-one markets.
CoreLogic expects to see a more balanced housing market, with year-over-year appreciation slowing to 3.9% by Sept 2023. The CoreLogic HPI Forecast indicates that home prices will increase on a month-over-month basis by 0.0% from September 2022 to October 2022 and on a year-over-year basis by 3.9% from September 2022 to September 2023.
Nationally, home prices increased 11.4% year over year in September 2022. On a month-over-month basis, home prices declined by 0.5% in September 2022 compared with August 2022. No states posted an annual decline in home prices. The states with the highest increases year over year were Florida (23%), South Carolina (17.6%), and Tennessee (17.4%). Large cities continued to experience price increases in September, with Miami on top at 25.6%, followed by Phoenix at 13.8%, and Las Vegas at 13.6% year over year.
The CoreLogic Market Risk Indicator (MRI), a monthly update of the overall health of housing markets across the country, predicts that Crestview-Fort Walton Beach-Destin, Florida is at a very high risk (70%-plus probability) of a decline in home prices over the next 12 months. Bremeton-Silverdale, Washington; Bellingham, Washington; Eugene, Oregon and Tacoma-Lakewood, Washington are also at very high risk for price declines in 2023.
A worldwide research firm, Capital Economics, predicts that the U.S. house price rise will likely slow in 2023, not this year. In October, the firm revised its forecast from a 5% price decline to an 8% price decline. Moody’s Analytics also adjusted its insights in August, September, and October, estimating a steeper drop each month. The economic research firm now expects home prices to fall 10%, and that’s in a best-case-scenario. If a recession takes hold, prices could fall between 15% and 20%.
However, the firm does not forecast a spectacular “price decline” or a housing bubble bust similar to that of 2006, which precipitated the global financial crisis and the Great Recession. A 5 percent fall would definitely constitute a price decrease, but it would not cause home prices to spiral out of control. Remember that house prices have risen steadily for several years and surged significantly during the COVID-19 epidemic.
A price drop is noteworthy, but in the grand scheme of things, it is relatively little. Before the housing bubble of 2006, the U.S. housing market was primarily supported by exceedingly risky bank lending methods that produced a synthetic demand for housing, allowing those who could not afford to retain their homes to acquire them. According to analysts, today's market does not have the same circumstances.
According to analysts, today's market does not have the same circumstances. Capital Economic forecasts that mortgage rates would increase to 6.5 percent by 2023. According to Matthew Pointon, a senior property economist at Capital Economics, if home price growth follows our earlier predictions and declines to zero by mid-2023, mortgage payments would remain above their mid-2000s peak until mid-2023.
Where Will Home Prices Rise the Most in 2024?
Fortune magazine reached out to Moody’s Analytics to get access to its latest proprietary housing analysis, and according to it, home prices will increase by zero percent in 2023—a dramatic decrease from the 19.7 percent price growth the housing market experienced in the last 12 months. However, analysts anticipate that price changes will vary significantly between regions of the United States.
In its analysis, the financial intelligence firm calculated how home prices are likely to shift in 414 regional housing markets between the fourth quarter of 2022 and the fourth quarter of 2024. Among the nation’s 414 largest housing markets, Moody’s Analytics forecast model predicts that 210 markets are on the verge of seeing home prices decline over the coming two years and 204 markets are poised to see home prices rise over the coming two years.
These cities are expected to report the biggest rise in home prices in 2024:
- Albany, Georgia (5.5 percent)
- Casper, Wyoming (4.52 percent)
- Columbus, Georgia (4.09 percent)
- Rocky Mount, North Carolina (3.97 percent)
- San Jose, California (3.83 percent)