The Outlook for the Next Five Years in the Housing Market

The real estate market has experienced significant fluctuations in recent years. Following a period of heightened market activity marked by exceptionally low-interest rates and intense competitive bidding, mortgage rates have risen to their highest level in over two decades.

Specifically, the average rate for a 30-year mortgage has experienced a notable surge, surpassing a 100 percent increase from its August 2021 value of 3 percent to exceed 7 percent by August 2023. The circumstances above resulted in a deceleration of purchasing behavior. Even with the prevailing scarcity of inventory, it is evident that home prices continue to exhibit unaffordability across numerous regions within the United States.

Numerous prognostications have been made regarding the trajectory of the housing market as we approach the year 2024. However, it is imperative to consider the implications of extending our analysis beyond the immediate scope. In light of the circumstances, it is worth noting that purchasing a residential property typically necessitates meticulous and strategic long-range considerations.

We sought the insights of various industry experts to provide us with their projections on the real estate market for the upcoming five-year period. In contemplation of the forthcoming year, 2028, one directs their attention towards the future.

According to the National Association of Realtors (NAR), the median sale price of existing homes in the country reached a notable milestone in July 2023, standing at $406,700.

This figure represents the highest recorded price for the month of July, as reported by the aforementioned organization. According to data from the National Association of Homebuilders (NAHB), it has been observed that the median sale price for new-construction homes in July was marginally elevated, amounting to $436,700.

According to data from the National Association of Realtors (NAR), the current inventory of homes for sale, while showing a slight increase compared to the previous year, continues to be significantly limited. In July, the existing homes’ inventory level stood at a 3.3-month supply, falling short of the equilibrium point for a balanced market, which typically necessitates a collection ranging from 5 to 6 months.

The extended duration of homes on the market can be attributed to the prevailing high mortgage rates, which have rendered property acquisitions unattainable for many prospective buyers. According to the National Association of Realtors (NAR), the median duration that homes remained on the market in July was reported to be 20 days. The observed increase in time from 14 days in July of the previous year is substantial.

The number of existing homes being sold nationwide has experienced a decline, as a considerable portion of homeowners opt to remain in their current residences due to the advantageous fixed mortgage rates that are significantly lower than prevailing rates. According to the National Association of Realtors (NAR), there was a decline of over 16 percent in the volume of sales during July when compared to the same period in the previous year. According to the data provided by the National Association of Home Builders (NAHB), it has been observed that there was a notable increase of 4.4 percent in the sales of newly constructed single-family homes during July, as compared to the preceding month of June.

As per the comprehensive national survey of prominent lenders, the prevailing average rate for a 30-year mortgage, as of the latter part of August, stood at 7.32 percent. This figure represents a notable elevation, reaching levels that have not been observed since 2001.

Predictions for the Various Forms of Mortgages and Their Rates

According to Lawrence Yun, the chief economist at NAR, it is anticipated that mortgage interest rates may persist in their upward trajectory. Yun suggests that a benchmark of 7 percent could prevail throughout the remainder of this year and a significant portion of 2024.

According to his statement, it is anticipated that the rate will revert to a range of 5.5 to 6 percent within a span of two years. According to Danushka Nanayakkara-Skillington, the Assistant Vice President of Forecasting and Analysis for the National Association of Home Builders (NAHB), interest rates are anticipated to decrease to approximately 6 percent by the midpoint of 2024.

Due to the prevailing high rates, it is anticipated that there will be an increased level of interest in adjustable-rate mortgages in the forthcoming year, as predicted by Yun. Subsequently, it is expected that a significant majority, approximately 90 percent, of the American populace will revert to the conventional 30-year fixed-rate mortgage.

According to Greg McBride, CFA, the chief financial analyst at Bankrate, the 30-year fixed mortgage is anticipated to continue to maintain its position as the prevailing mortgage product. According to the individual, the provision of certainty to borrowers, the ability for lenders to sell these loans to investors, and the existence of a thriving secondary market with enthusiastic global investors contribute to the overall value of this system.

Predictions About the Values of Homes

As per Yun’s analysis, it is anticipated that there will be minimal fluctuations, approximately within a range of 5 percent, in purchase price tags at a national scale in the upcoming year. According to the speaker, except California, there exists a possibility of a 10 percent decline in the market. The rationale behind this assertion is that California is consistently more susceptible to fluctuations in interest rates due to its high cost of living.

The current situation is being observed in the most expensive regions within the state, such as San Francisco. It has been noted that the median home prices in San Francisco have experienced a decline of 9.71 percent compared to the previous year, as indicated by data from Redfin. In the projected timeframe of five years, it is anticipated that there will be an overall appreciation in prices, with estimates ranging between 15 and 25 percent.

According to McBride’s analysis, home prices are anticipated to exhibit a modest annual appreciation ranging from low to mid-single digits over the next five years. The individual asserts that the observed appreciation rate aligns with the historical norm, wherein home prices have traditionally exhibited a growth rate surpassing the inflation rate by approximately one percentage point.

Will There Be a Collapse in the Property Market?

Although the residential real estate market shows specific characteristics of a bubble, Yoon believes it is unlikely to experience a significant downturn. In the coming year, Yoon predicts a decline in sales volume, totaling 5.3 million units. However, he believes there will be gradual growth, reaching 6 million units per year by 2027.

In light of rising mortgage rates, it is worth noting that the housing market continues to show resilience, according to the interviewee. Even with a 5 percent (or 10 percent in California) decline projected for the coming year, it is essential to note that such a decline does not meet the definition of a market crash characterized by a one-third reduction.

In Yun’s view, there has been an oversupply incident. A 30% supply reduction needs to be revised based on current inventory levels. It is believed that the housing supply will reach a state of equilibrium within five years.

Many experts agree that the prospect of an impending housing market crash is not a significant threat. The current inventory shortage, as Yun notes, is exacerbated by much tighter lending standards than during the Great Recession.

Lenders have taken a cautious approach, refraining from lending to borrowers whose financial capacity may not match their repayment obligations. These careful lending practices have been vital in keeping foreclosures reasonably low.

Will Conditions Become More Favorable for Purchasers?

It is anticipated that the prevailing conditions of a seller’s market will persist, contingent upon the sustained scarcity of housing inventory, according to Yun. In the projected timeframe of five years, it is anticipated that a state of equilibrium will be achieved within the market, wherein neither the purchaser nor the vendor will possess a substantial upper hand. Conversely, the balance of negotiating power among parties will be rendered more equitable and contingent upon the unique circumstances of each case.

According to Caroline Feeney, the esteemed director of content and executive editor at HomeLight, it has been observed that the transition away from a seller’s market has already commenced. A recent survey conducted by the company found that 51 percent of HomeLight agents characterized their present local market as a seller’s market.

The individual in question shares the anticipation of a balanced market shortly. Notably, most agents, precisely 55 percent, believe that the needs that experienced rapid heating during the pandemic, such as Austin, Phoenix, and Boise, are expected to be the initial ones to undergo a cooling phase. It is plausible that the aforementioned scenario is currently unfolding. According to a recent study by Knock, it has been determined that Austin and Boise are projected to exhibit a buyer-friendly real estate market by early 2024. Additionally, the study suggests that Phoenix is expected to favor buyers during the same period strongly.