The real estate market has been on a rollercoaster ride in recent years, with significant changes in mortgage rates, home prices, and buying activity. From a red-hot market with low interest rates and bidding wars to a slowdown in buying activity due to increased mortgage rates, the landscape has shifted dramatically. Despite the challenges, home prices continue to soar, making homeownership unattainable for many Americans.
Looking ahead to the next five years, industry experts have shared their forecasts for the housing market. Lawrence Yun, the chief economist at the National Association of Realtors (NAR), believes that mortgage rates have likely peaked for 2024 and will gradually decrease in the coming years. He predicts a return to more traditional mortgage products, such as the 30-year fixed-rate mortgage, as interest rates stabilize.
In terms of home prices, Yun expects modest fluctuations in the near future, with an overall appreciation of 15 to 25 percent over the next five years. Greg McBride, the chief financial analyst at Bankrate, anticipates low to mid-single-digit annual appreciation, aligning with historical trends of home prices outpacing inflation rates.
While concerns about a housing market crash have been raised, Yun reassures that the current market conditions do not indicate an imminent crash. With strict lending standards and limited inventory, the risk of a significant downturn is low. Yun predicts a gradual increase in sales volume over the next few years, leading to a more balanced market by 2027.
As the market evolves, the shift from a seller’s market to a more balanced market is expected. With inventory levels playing a crucial role in market dynamics, the negotiating power between buyers and sellers will become more equal. Areas that experienced rapid growth during the pandemic, such as Austin, Phoenix, and Boise, may see a cooling off as the market stabilizes.
Looking at new construction trends, experts anticipate continued growth in suburban markets, particularly in the Sun Belt regions. The demand for multi-family homes is also expected to remain strong, although growth may stabilize in the face of rising mortgage rates and building material costs.
For prospective homebuyers preparing to enter the market in the next five years, financial readiness is key. Strategies such as increasing earning power, reducing debt, improving credit scores, and focusing on local market conditions can help individuals achieve their homeownership goals by 2029.
Overall, while the real estate market may face challenges in the coming years, experts remain optimistic about its long-term stability. By staying informed and prepared, prospective buyers can navigate the evolving market landscape and achieve their homeownership dreams.