For many home buyers and sellers, 2023 has been a challenging year. This is due to the fact that many people cannot afford the costs of houses and mortgages. Meanwhile, a scarcity of available housing has increased rivalry among buyers, making it difficult to locate the ideal property.
A valid question that a lot of buyers and sellers are posing is: Will things in the real estate market get better soon?
Numerous forecasts already exist predicting the trajectory of the US housing market in the next five years. This is because, ultimately, real estate buying and selling usually require long-term planning.
In spite of being a hot topic, the US housing market seems to be slowing down after growing rapidly during the pandemic years. Experts believe that things will get worse before they get better, given the turbulent ride that the US housing market has been on in recent years. Some forecasts also predict that there will be fewer homes available for purchase, which may drive up prices.
Let’s take a deeper dive to understand more about the US housing market predictions for the next five years. So, here we go!
Current State Of The Housing Marketing
It’s useful to evaluate the current status of the US housing market before you jump onto the predictions for real estate forecasting for the next five years.
The recent data shows that U.S. home prices increased by 5.1% in January 2024 over the same month the previous year. Currently, the median price of a home in the US is approximately $402,242.
There were 2,87,009 homes sold in January of this year, up from 279,249 homes sold in the same month last year, representing an average 2.8% annual increase in the number of homes sold.
At 6.6%, the average 30-year fixed mortgage rate nationwide has increased by 0.4% in the past year.
Housing Market Predictions For The Next 5 Years
While predicting the housing market over the next five years is challenging, the following gives an idea of what data shows and what most experts believe is possible.
The land use and real estate industries have been significantly affected by the COVID-19 outbreak. Over the following five years, these effects will still have a mark on the supply and demand in regional housing markets.
The fitness of local job markets, the prevalence of hybrid work mode, emerging technology, and shifting demographics are some of the factors that are anticipated to continue having an impact on the housing market in the future.
On the other hand, if real incomes increase more quickly than inflation, affordability, home sales, and prices may all increase due to increased purchasing power and reduced mortgage rates. Home prices will probably increase by 1% to 2% over the present inflation rate if real incomes increase between 2025 and 2027. It may take some time to get to the mid-2022 home value highs.
Let’s also have a look at what more the data has to say about the home prices, home sales, and mortgage rates below.
1. Home Prices
The National Association of Realtors predicts that by the end of 2024, home prices, which were down 0.8% year over year through December 2023, will have increased by 1.8% to $390,000.
Given the significant increase in home prices from 2021 to 2023, it is anticipated that by 2025 through 2028, prices will climb more gradually at a pace that is approximately 1% higher than the rate of inflation, or an estimated 13% to 14% higher than 2023 levels.
2. Home Sales
Existing home sales are expected to soar in 2024 and 2025 as mortgage rates decline, building on their 2023 rapid decline to the lowest level since 1995.
The capacity of builders to lower mortgage rates to increase affordability contributed to the growth in new house sales in 2023, and this trend is expected to continue.
3. Mortgage Rates
Over the course of the forecast period, 30-year fixed mortgage rates are expected to steadily decline, but it is doubtful that they will drop below 5.0% since rising public debt in the US and globally would restrict the amount of financing available.
Some Expert Predictions
Nobody owns a crystal ball, and accurately anticipating five years in advance is difficult. Since it’s still a long way off, a plethora of unforeseen circumstances could arise and throw off our predictions about how the economy and home market will behave.
Having said that, experts are still prepared to provide a long-term outlook.
According to McBride, during the next five years, average yearly growth in house prices will be in the low- to mid-single digits. According to him, this rate of appreciation is in line with the long-term average of house prices rising at a rate that is marginally higher than the rate of inflation.
Lawrence Yun, chief economist for the National Association of Realtors, predicts that during the next five years, the rise of total price growth across the country would likely range from 15% to 25%.
Greg McBride, chief financial analyst at Bankrate predicts that during the next five years, the US real estate market would likely yield an average annual return of the mid to low single digits.
We are aware that, over time, real estate often yields stable long-term returns that outpace inflation. Although there is never a straight line, we may be more certain of the general direction of travel over a longer period of time – and in the case of real estate, that has historically been upward.
We really hope this blog was helpful to you in gaining better insights!
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