Five Year Forecast for the Housing Market

The past few years have marked a crazy time in the residential real estate markets. We went from a hot market with very low interest rates into one where the average 30-year mortgage more than doubled from late 2021 to late 2023. For these reasons, the market has definitely slowed down. Even so, with inventory still scarce in many markets around the country, home prices are hitting new records and remain unaffordable in many parts of the United States.

Lawrence Yun, NAR’s chief economist, says mortgage interest rates have likely topped out, at least for 2024. “I believe we’ve already reached the peak in terms of interest rates,” he told attendees at last year’s NAR convention. He also said that within two years, the rate should return to five and a half to six percent. Since rates are high, Yun believes there will be continued interest in adjustable-rate mortgages. He predicts that 90 percent of Americans will return to the traditional 30-year fixed-rate mortgage.

Yun also believes that there will not be a bubble-burst of the residential real estate market. “A crash happens with oversupply. It will not happen, because there isn’t enough inventory.” Also, lending standards today are much stricter than they were than during the recession of 2007.

Yun expects the seller’s market to continue as long as inventory remains low. By five years out, he foresees more of a balanced market, where the negotiating power between the parties will be equal.

Greg McBride, CFA, Bankrate’s chief financial analyst, believes that the 30-year fixed mortgage will remain the dominant mortgage product. He also said that home prices will average low- to mid-single-digit annual appreciation for the next 5 years. He says this is consistent with the long-term average of home prices.

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