The housing market is one of those asset classes that get better with time. Historically, home values rise even if there are stretches in between when the market slows down. For example, in the five-and-a-half decades leading up to 2022, home prices adjusted for inflation climbed higher by 4.23 percent annually, according to statistical data from the U.S. Bureau of Labor.
However, in 2022, the U.S. housing market was up against a perfect storm of economic headwinds, including rising interest rates, high inflation, and the looming threat of a recession.
As of December 2022, the 30-year fixed rate mortgage finally fell below 6 percent after rising above 7 percent in September.
The housing market can change drastically from year to year. Considering that historical results don’t guarantee future performance, we thought now would be an excellent time to explore the housing market trends and predictions for the next five years: 2023 to 2026.
Housing Market Predictions for the Next 5 Years
Heading into 2023, demand in the real estate market continues to surpass supply, which bodes well for the next five years in terms of market trends and predictions, according to the National Association of Realtors (NAR).
However, there are different perspectives considering the future of the housing market. Let’s get into it.
The 2022 Housing Market Landscape
It has been tough sledding for homebuyers this year. Builders had to contend with the cancellation of construction, mortgage rates were rising, and home sales sunk. However, Realtor.com believes home prices are poised to increase between the end of 2022 and the end of 2023 compared to the NAR’s call for a 2.5 percent increase.
All told, it has been a chilly real estate market in 2022 due to a perfect storm of rising mortgage rates, sellers waiting on the sidelines to list their homes until market conditions improve, and buyers not being able to afford the same home they could afford a year ago.
Housing Market Predictions 2023
Zillow predicts home values will rise by 1.3 percent in the next 12 months ending September 2023. The company also warns that based on the pace of pending home sales activity and mortgage applications, there are “significant downside risks to home sale volumes into 2023”.
CoreLogic Chief Economist Selma Happ suggests that thanks to a combination of depleting housing inventory, easing mortgage rates, and improved economic data, real estate values could stabilize in 2023.
Housing Market Predictions 2024
According to a Zillow survey, the real estate market may revisit pre-pandemic levels in 2024 and first-time home buyers will likely reclaim market share in 2024. We also see that Capital Economics, a world research firm, expects housing prices to increase by 3 percent by the end of 2024.
Wall Street bank Goldman Sachs has issued a forecast for the housing market too. The firm predicts that while U.S. home prices will drop 5-10 percent over the coming year, the market will reach its bottom at the end of 2023. This will lead to leveling prices in 2024, which should stay stable through mid-year. Overall, the bank predicts a slow recovery in housing prices in 2024.
Housing Market Predictions 2025
A 2022 Zillow poll suggests that housing inventories will strengthen by 12 percent in 2025, which would undoubtedly give buyers more leverage. A Zillow survey also found that 13 percent of participants expect homebuyers to be in the driver’s seat in 2025.
Housing Market Predictions 2026
Zillow’s home price expectancy poll of economists and real estate experts shows that most participants expect home prices to rise 46.5 percent in the next four years. A more conservative cohort predicts a more modest 10.3 percent growth in the same period. In addition, a mere 8 percent of poll participants expect the housing market to largely favor homebuyers in 2026.
Where are Housing Prices Going Down?
Home prices are trending lower in the following cities:
- Austin, Texas
- Phoenix, Arizona
- Palm Bay, Florida
- Charleston, S.C.
- Ogden, Utah
Where are Housing Prices Rising?
Home prices are trending higher in the following cities:
- Miami, Florida
- Memphis, Tennessee
- Omaha, Nebraska
- Wichita, Kansas
- Greensboro, North Carolina
Will the Housing Market Crash in the Next Five Years?
The last time the housing market crashed was in 2008, when the subprime mortgage crisis emerged, sending the real estate market into a tailspin.
San Jose State University economist Fred Folvary predicted that crisis and believes the housing market is due for a crash every 18 years. According to Folvary, the next housing market crash cycle is expected in 2024, which he says will snowball into a great economic depression in 2026. On the other hand, NAR economists forecast price growth in the housing market in the range of 15-25 percent over the next half-decade.
However, there is no crystal ball in real estate. Five years is like an eternity in the housing market and therefore it is difficult to pinpoint exactly what economic and market conditions will be like.
Will the Housing Market Turn Into a Buyer’s Market in the Next Five Years?
A buyer’s market is created when housing supply outpaces demand, the opposite of the NAR’s predictions for 2023. On the other hand, a seller’s market occurs when demand is stronger than supply, or housing inventory. Some sources are seeing growing evidence that the housing market is already turning into a buyer’s market vs. a seller’s market.
According to a Homelight poll surveying real estate agents, the seller’s market that emerged in 2022 is beginning to fade headed into the new year. Agents say the pendulum has already started to swing toward buyers in terms of prices in the real estate market.
As of the fourth quarter of 2022, nearly one-quarter of real estate agents described the market as a “buyer’s market” compared to the 10 percent of agents who did in the previous quarter.
Is It a Good Idea to Buy a House In the Next Five Years?
The evidence shows that real estate markets can change dramatically in a year. So if you plan to buy a house in the next five years, chances are you will find a sweet spot in the market. If you believe the worst case will come, and another housing crisis will unfold in 2024, then you should act sooner than later.
Otherwise, wait and see how the interest rate plays out. As mortgage rates become more attractive, which, based on the trajectory of policymakers, is expected, pick your spot to get off the sidelines and jump into the market.
There is No Time Like the Present and Total Mortgage Can Help
One thing is clear: the next five years will be exciting in the housing market.
With mortgage rates finally beginning to ease in the U.S. economy thanks to the Federal Reserve slowly taking its foot off the gas pedal, now could be the time to jump in and find your dream home.
Start the application process with Total Mortgage. We have loan experts standing by at our offices around the country and they are ready to help you understand the mortgage rate environment, and how to navigate the changes ahead.