Are you curious about what the next 5 years hold for the U.S. housing market? Recent reports suggest that the housing market downturn could wipe $2.3 trillion in value, with experts predicting prices could still tumble another 10%. Rising mortgage rates, a lack of affordable housing, and the COVID-19 pandemic have all contributed to this decline, which could have far-reaching implications for the industry. In this article, we'll dive into the housing market predictions for the next 5 years and what they could mean for buyers and sellers.
The housing market is a crucial component of the US economy, and predicting its future trends and fluctuations can be difficult, especially as external factors can influence the market. Some economists are more hopeful, but even those who predicted price increases through 2023 are changing their tune. The US housing market is expected to continue to cool off in 2023 after a 40% boom during the Covid-19 pandemic, according to the National Association of Realtors (NAR).
Rising interest rates will increase the cost of mortgages for new buyers, but prices are unlikely to fall as they did during the 2008 market crash, as lending standards have become more robust. The market was driven higher during the Covid-19 pandemic by record low borrowing rates, encouraging purchases by first-time buyers, and a lack of supply because of underbuilding. Analysts and economists have different opinions on whether prices will be flat or collapse in the next five years. However, they agree that the housing market will experience a slowdown in the coming years.
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The US housing market is driven by the supply of properties on the market and interest rates, which are used to set mortgage rates. In 2021, the median US existing home price climbed by 16.9% to $346,900, with sales of 6.12 million reaching their highest level since 2006. The market was driven by record-low interest rates, strong growth in prices and rentals for single-family homes, low foreclosure rates, and the 15-year high in sales.
However, the pandemic-driven boom came to an end in 2022, with pending home sales falling for the sixth consecutive month in November, down by 4% from October. The FHFA house price index remained unchanged at 392.70 points in October, well below the June peak of 397.58, but above the August dip of 392.
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Analysts and economists expect the US housing market to cool in 2023 but differ on whether prices will be flat by 2022 or collapse. The US Federal Reserve has signaled its intention to raise interest rates, which will likely lead to a slowdown in the housing market. However, prices are unlikely to fall as they did during the 2008 market crash, as lending standards have become more robust.
In the next five years, the US housing market is predicted to experience a slowdown, with prices either flat or experiencing a modest decline. According to a report by Zillow, home values are projected to increase by 5.5% over the next year, slower than the 16.9% increase seen in 2021. Zillow predicts that home values will increase by 3.5% in 2023, 3.4% in 2024, 3.3% in 2025, and 3.2% in 2026. The report also notes that the number of homes for sale will continue to be low, putting upward pressure on prices.
Looking further into the next five years, the US housing market is forecasted to see a slowdown in price growth, with some experts predicting a plateau in home prices while others foresee a moderate decline. The predicted slowdown is due to a combination of factors such as rising interest rates, an increase in the supply of homes, a decrease in demand, and affordability challenges for buyers.
Rising interest rates are expected to make it more expensive for buyers to borrow money to purchase homes. Mortgage rates have been at record lows for several years, but many economists predict that they will begin to rise in the coming years. Higher interest rates will decrease the buying power of potential buyers and lead to a decrease in demand, which will put downward pressure on prices.
Another factor contributing to the predicted slowdown in the housing market is an increase in the supply of homes. The lack of supply was one of the factors that drove the recent boom in home prices, but the situation is expected to change as new home construction increases. In addition, some homeowners who were hesitant to sell during the pandemic are expected to put their homes on the market in the coming years, increasing the inventory of homes for sale.
The overall affordability of homes is also expected to play a role in the future of the housing market. With home prices at record highs, many buyers are struggling to afford homes, particularly first-time homebuyers. This affordability challenge, combined with rising interest rates, could lead to a decline in demand and therefore a decline in prices.
Despite the predicted slowdown, it is important to note that many experts do not expect a crash in the US housing market similar to the one seen in 2008. Lending standards have become more robust, which should help prevent widespread defaults and foreclosures. In addition, the current economic climate is much different than it was in 2008, with a strong labor market and a more stable financial sector.
While the US housing market is expected to see a slowdown in price growth over the next five years, experts do not expect a crash similar to the one seen in 2008. Factors such as rising interest rates, an increase in the supply of homes, and affordability challenges for buyers are expected to contribute to the slowdown, but the overall health of the economy and lending standards should help prevent a catastrophic collapse.
Housing Market Predictions: Real Estate Forecast Next 5 Years
There is an abundance of speculation regarding the forecast of the housing market in 2023. However, what about the real estate forecasts for 2024, 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.
The COVID-19 pandemic has had a significant impact on the real estate and land use sectors. These effects will continue to impact the demand and supply of regional housing markets over the next five years. Emerging technologies, changing demographics, the state of local job markets, and the rise of remote work are some of the trends expected to shape the housing market in the future.
The U.S. News Housing Market Index provides a data-driven overview of the housing market nationwide and serves as one of the authoritative sources for the information presented in this article. While it is possible for median home prices to fall by 5% in 2024, if mortgage rates decline faster than predicted, home prices could remain mostly flat through the end of 2024.
However, if real incomes rise faster than inflation, the combination of extra purchasing power plus lower mortgage rates could boost affordability, home sales, and prices. If real incomes rise from 2025 through 2027, home prices will likely rise again by approximately 1% to 2% above the current inflation rate. However, it will likely take some time to reach the home value heights of mid-2022.
Housing Market Predictions for 2024
The year 2024 is expected to bring more stability to the housing market after a few years of uncertainty. With mortgage rates declining faster than expected, home prices are likely to remain mostly flat throughout 2024. This will be good news for buyers who have been waiting on the sidelines for a good time to enter the market.
According to the U.S. News Housing Market Index, the national housing shortage will continue through the end of the 2020s, making it a seller's market in many regions. The National Association of Home Builders predicts that the national housing shortage will last through the end of the 2020s. Due to the estimated pent-up demand for housing, which ranges from 1.5 million to nearly 3.8 million homes, it will take time for the nation's builders to find suitable land, skilled labor, and materials to create a much-needed supply.
The rising cost and consequences of climate change will also impact the housing market in 2024. Homebuyers and builders will have to factor in the costs of building homes that are resilient to climate change and extreme weather events. The total cost of homeownership will become a key metric, taking into account not only the purchase price and mortgage rates but also property taxes, maintenance costs, insurance premiums, and other expenses.
Housing Market Predictions for 2025
In 2025, the housing market is expected to start picking up again, with home prices rising by approximately 1% to 2% above the current inflation rate. This increase will be due to a combination of factors such as the rise in real incomes, lower mortgage rates, and increased affordability. However, it may take some time to reach the home value heights of mid-2022.
More buyers are expected to join with friends and family members to purchase homes, as intergenerational households, grown children “boomeranging” homes, and families created from friendships increasingly pool multiple income sources to purchase homes and avoid the uncertainty of housing costs as renters.
The ways homes are built are also expected to change in 2025. Emerging technologies such as 3D printing, factory-built structural components, and software that minimizes the waste of materials are likely to become more common in the construction industry. These methods are expected to improve building quality while speeding up construction timelines.
Housing Market Predictions for 2026
In 2026, the housing market is expected to continue its upward trend, with home prices rising at a moderate pace. The pent-up demand for housing is expected to be supplied between 2025 and 2030, according to the National Association of Home Builders. However, the changing demographics by 2030 will result in lower demand for new housing, which could lead to a slowdown in construction activity.
The trend of more buyers joining with friends and family members to purchase homes is expected to continue in 2026, as the rising cost of housing and the desire for more space and privacy drives people to pool their resources. This trend is likely to result in more multi-generational households and co-living arrangements.
The total cost of homeownership is expected to become an even more important metric in 2026, as buyers and builders factor in the cost of climate change and other external factors. The rising cost of insurance and building materials, along with the need to adapt to a changing climate, will make it essential for homeowners to consider the total cost of homeownership when making purchasing decisions.
Housing Market Predictions for 2027
Predicting the housing market for 2027 is a challenging task as it depends on various factors such as economic growth, interest rates, population growth, and government policies. However, based on the current trends and projections, it is possible to make some predictions. One potential trend that could affect the housing market in 2027 is the continued urbanization of populations.
This means that more people are moving from rural areas to urban areas, which will create a higher demand for housing in cities. As a result, there may be more construction of apartment buildings and townhouses to accommodate this growing population. Another factor that could influence the housing market is the continued rise of technology. With advancements in technology, people are becoming more mobile and can work from anywhere in the world.
This could lead to an increase in remote working, which may cause more people to relocate to suburban and rural areas. This, in turn, could lead to an increase in demand for single-family homes in these areas. In addition to these trends, it is also important to consider economic factors such as interest rates, inflation, and job growth.
Interest rates are a crucial factor in the housing market, as they affect the cost of borrowing money for a mortgage. If interest rates remain low, this could encourage more people to buy homes, leading to a rise in demand and prices. However, if interest rates rise too quickly, this could make it more difficult for people to afford a mortgage, leading to a decline in demand and prices.
Finally, government policies could also impact the housing market in 2027. For example, changes to zoning laws or building codes could affect the supply of housing, leading to changes in prices. Similarly, changes to tax laws could also impact the affordability of homes, leading to changes in demand.
In conclusion, the next few years are likely to bring significant changes to the housing market, with a combination of factors such as changing demographics, emerging technologies, and the impact of climate change driving demand and supply. The National Association of Home Builders predicts that the national housing shortage will last through the end of the 2020s, and the cost of ownership will become a key metric for buyers.
Despite the uncertainty caused by the pandemic and other external factors, the housing market is expected to remain strong, with opportunities for both buyers and sellers. It is important for all stakeholders to keep a close eye on the latest trends and developments in the market to make informed decisions.
These predictions and guesses provided are based on current trends and historical data. However, they are still subject to numerous variables and factors that may impact the housing market in unforeseen ways. Therefore, please note that these predictions and guesses are for informational purposes only and should not be considered financial or investment advice. Any decision made based on this information is solely at your own risk.
Will it Become a Buyer's Real Estate Market?
The US housing market has seen skyrocketing home prices for the past two years, with a shortage of inventory, low-interest rates, and high demand fueling the market. However, according to the latest Zillow Home Price Expectations Survey, this trend is expected to shift in the coming years. The report surveyed 107 housing market experts and economists from August 16–27, 2022. In this section, we will explore the predictions for when a buyer's market is expected to arrive and what the housing market will look like in the years to come.
2023: Expect a Shift in Favor of Buyers
According to the survey, the majority of panelists (56%) expect a significant shift in favor of buyers within the next year, making 2023 the year of the buyer. This shift is due to several factors, including sky-high mortgage costs, which are driving down competition among home shoppers. This shift is expected to exert additional pressure on the rental market, as priced-out potential homebuyers turn to rent.
However, the report also found that metros in the South and Midwest are the least likely to see price declines over the next year. In contrast, vacation market areas are most likely to see price declines. The panelists also predicted that rent growth and inflation should outpace stocks and home price appreciation over the next year.
2024: Further Decrease in Home Prices
While 56% of panelists predict a buyer's market in 2023, another 24% predict that the housing market shift would come in 2024. This prediction shows that the trend of a buyer's market will continue to strengthen over the next few years. Inexpensive Midwest markets, such as Columbus, Indianapolis, and Minneapolis, are expected to see the least decline in home prices over the next 12 months. Fast-growing markets in the South, such as Atlanta, Nashville, and Charlotte, are also expected to retain their heat. However, markets that saw some of the largest growth over the course of the pandemic, including Boise, Austin, and Raleigh, are projected to cool the fastest.
2025: Further Consolidation of the Buyer's Market
As per the survey, 13% of the panelists expect the market to favor home buyers in 2025. This further solidifies the buyer's market trend, which has been building up since 2023. Suburban and exurban areas are predicted by the panel to retain their heat over the next 12 months, while vacation areas and urban areas were considered the most likely to see price declines.
Overall, the report suggests that the US housing market will undergo a significant shift in the coming years, with home prices declining and a shift towards a buyer's market. This change is a result of several factors, including rising mortgage rates, a shortage of inventory, and sky-high prices that have pushed many prospective buyers to the sidelines.
Although this shift is expected to benefit buyers, high and rising rents could cut further into their ability to save up for a down payment, making it harder for some to transition from renting to owning. As the housing market continues to evolve, it will be important to monitor these trends to understand the implications for the broader economy.