What’s Ahead For Housing In The Next 5 Years?
No one has a crystal ball and we can’t be certain what the future holds for any investment asset. There’s always the potential for something completely
Even so, it makes sense to look to the future for some guidance as to the impact on our finances.
This is particularly true for the housing market. For many people, buying a home is the single largest purchase they’re ever going to make. It takes
years of saving and planning, which is why looking into the future is a good idea.
It might work out differently than you’d expected, but having a plan in place at least means you’re taking steps in the right direction, regardless of the actual
So what does the future hold for the housing market?
With the recent mortgage rate hikes, the housing market is expected to soften over the next year.
According to data from Freddie Mac, the average interest rate on a 30 year fixed mortgage in December was 7.08%. One year earlier, that same average rate was below 3%.
A 30 year mortgage of $300,000 at a rate of 2.98% results in a monthly repayment of $1,262. That same mortgage at a rate of 7.08% equates to $2,012, or an increase of $750 per month.
This massive difference has a major impact on first time home buyers or would-be movers, suggesting that property prices could fall 5 to 10% over the next 12 months in the United States.
By late 2023, prices nationally are expected to level off and remain relatively flat until mid 2024.
This aligns with Fed chairman Jerome Powell’s suggestion that the interest rate cycle is likely to last longer than had originally been anticipated, peaking just under 5% at the end of 2023.
As mortgages remain expensive, home buyers are likely to hold off on their purchases, further slowing the market.
By the middle of 2023, the housing market can be expected to stabilize.
Into 2024 and 2025, a gradual rebound of house prices is predicted with values creeping up towards the end of the period.
While looking forward five years is challenging, the overall long term outlook is positive.
A drop in price growth over the coming year is expected followed by a leveling out in 2024 and then a subsequent period of relatively strong growth, providing an average yearly return of low to mid single digits over the next five years.
Lawrence Yun, chief economist for the National Association of REALTORS®, predicts 15% -25% total price growth across the US over the next five years.
The main issue impacting housing affordability isn’t going to be the changes in the value of properties, it will be the increased cost for the mortgages required to buy them.
Long term, homeownership generally provides consistent returns above the rate of inflation. It’s never a straight line, but with real estate, that’s historically been up.