Here’s what some of the experts predict will happen in the housing market in the next five years. According to Zillow, the current typical value of homes in the United States is $354,165. This value is seasonally adjusted and only includes the middle price tier of homes. In June 2021, the typical value of homes was $295,000. Home values have gone up 19.8% over the past year.
The housing market forecast has been revised in July 2022 by Zillow Group. The real estate group now forecasts 7.8% home value growth over the next 12 months (July 2022-June 2023). 5.46 million existing home sales are expected in 2022, a 10.8% decrease from 2021. Zillow expects yearly house value growth would decelerate from 19.8% to 7.8% by June 2023. Zillow had predicted a 9.7% increase in the year ending May 2023. The revised prediction expects a greater depreciation before settling at pre-pandemic levels.
The lower change comes amid a faster-than-expected decrease in monthly Zillow Home Value Index growth and a poorer forecast for home sales. The housing market is fast rebalancing from what had been the greatest seller’s market in decades, with inventory growing and competition for houses reducing. Given macroeconomic challenges, rebalancing should continue.
Zillow predicts 5.46 million existing home sales in 2022, down 10.8% from 2021. The downgrading was due to the Fed’s ambitious strategy to raise the federal fund’s target rate and declining consumer mood. Weak consumer mood typically leads to slow house sales. Aggressive interest rate rises are also feared to induce an economic slowdown, which would reduce house purchases.
Even with these downwardly revised projections, the housing market in 2023 would still be extremely robust.
While 5.46 million existing-home sales would be a decline from 2021’s extraordinarily robust level, it would be the second-best annual total since 2006.
The downward revision was driven by rising mortgage rates, rising inventories, and pending home sales and mortgage application data that were weaker than anticipated.
Housing Market Forecast 2024 and 2025
The Zillow home price expectations survey found that the housing market is likely to recover to pre-pandemic, 2019 norms by 2024, at least in terms of inventory and the proportion of purchases made by first-time home buyers. Home prices have grown 32 percent in the previous two years as a result of a shrinking number of properties on the market. The diminishing supply of available properties has been a major contributor.
Most panel members predict housing inventory to reach pre-pandemic levels by the end of 2024.
The share of first-time buyers is predicted to stay below 2019 levels until 2024.
The most bullish quartile of respondents predicted that prices will grow by 46.5 percent between now and the end of 2026, compared to only 10.3 percent for the most conservative group.
The average response predicts a total increase of 26.8% rise by the end of 2026 or a compound annual growth rate of 4.9 percent in the next (almost) five years.
The total inventory decreased from an average of 1,6 million units per month in 2018 and 2019 to a little over 1 million in 2021 and will decline further in 2022. The largest group of respondents (38 percent) to Zillow’s study predicts housing market inventory to rebound to a monthly average of 1.5 million units or higher in 2024. A second-largest of respondents (36 percent) predict that supply will return to pre-pandemic levels in 2023, while the third-highest proportion of votes (12 percent) came from those who believe it will happen in 2025.
The pandemic brought record-breaking price increases and rent increases that made saving for down purchases much harder. As a result, according to a Zillow survey of recent buyers, the percentage of first-time home buyers fell from 45 percent in 2019 to 37 percent in 2021. First-time purchasers would reclaim their pre-pandemic market share within the next two years, with 26 percent predicting 2024 and 25 percent predicting 2025.
About 18% of experts surveyed said they don’t expect the percentage of first-time buyers to surge over 45% until after 2030, despite many Millennials, the largest U.S. generation ever will be well into their prime home-buying years far before then. The median age of U.S. buyers is 43, while the average skews higher (45 years old). Almost one in five buyers (17%) are in their twenties or younger, while roughly a quarter (23%) are in their sixties or older. In other words, the age distribution of buyers represents somewhat of a middle ground when it comes to the U.S. population.
They are typically younger than tenured homeowners (those who have not moved in the past year), but older than renters. Buyers tend to have higher household incomes than the U.S. population overall. The annual median household income among buyers is approximately $86,000, compared to the overall national median (2019) of $65,700.
Another Zillow Home Price Expectations survey conducted in June shows that despite a more than 100-basis point increase in mortgage rates since the previous survey just three months ago and the potential for higher rates in coming months, the panel’s expectations for 2022 home price appreciation still rose to 9.3% from 9.0% last quarter. This would be a significant step down from the 19.6% appreciation observed over the 2021 calendar year, but still high above long-term historical averages.
Looking ahead, the most optimistic quartile of respondents expected a 46.1 percent increase in prices between now and the end of 2026, while the most conservative quartile predicted a 9.3 percent increase in that period. Respondents anticipate a total increase of 26.4 percent by the end of 2026.
Source: Zillow Home Price Expectations Survey
Real Estate Forecast Next 5 Years
The robust real estate forecast for the next 5 years is driven by the expectations for tight market conditions to persist, with demand for housing exceeding the supply of available homes. Despite declining buyers’ optimism that now is a good time to buy a house, the number of households interested in becoming homeowners remains high. This is especially true for younger homebuyers, who are likely first-time buyers and are struggling to save for a down payment as rents continue to reach record highs.
Simultaneously, seller expectations for larger down payments appear to be increasing, fueled by a still-competitive housing market and repeat buyers with relatively more available equity. The housing market is unlikely to shift from a seller’s to a buyer’s market anytime soon. Rising mortgage rates may take some of the steam out of the market, allowing inventory to rise slightly. It would also slow the rate of home price appreciation and reduce the possibility of a red-hot housing market resulting in an overheated market.
The supply of available homes is so low that even a significant drop in demand due to higher interest rates will not turn this into a buyer’s real estate market, according to industry experts. Because there are not enough houses available to meet demand, home prices will continue to rise, but the combination of rising home prices and elevated mortgage rates means fewer people will be able to afford to buy.
There would still be continuous price appreciation, scarcity of inventory, and good demand. Some markets will experience lower appreciation rates than others, with the Sunbelt performing particularly well. Home prices do not appear to be decreasing, even in some of the country’s most expensive markets, the tier one markets. For example, according to CoreLogic, these large cities continued to experience price increases in February, with Phoenix on top at 30.4% year over year. The second rank was held by Las Vegas with 26.5% year-over-year price growth followed by San Diego (25.2%).
Now that mortgage rates have reached the 6 percent barrier, a worldwide research firm, Capital Economics, predicts that the U.S. house price rise will likely slow in 2023, not this year. Capital Economics forecasted that the U.S. housing market will experience a 5 percent decrease in house price growth by mid-2023, followed by a “gradual rebound” to a 3 percent annual price rise by the end of 2024. It’s a major analysis that arrives as the U.S. housing market begins to shift, with increasing mortgage rates pricing out or discouraging potential homeowners.
However, the firm does not forecast a spectacular “price decline” or a housing bubble bust similar to that of 2006, which precipitated the global financial crisis and the Great Recession. A 5 percent fall would definitely constitute a price decrease, but it would not cause home prices to spiral out of control. Remember that house prices have risen steadily for several years and surged significantly during the COVID-19 epidemic.
A price drop is noteworthy, but in the grand scheme of things, it is relatively little. Before the housing bubble of 2006, the U.S. housing market was primarily supported by exceedingly risky bank lending methods that produced a synthetic demand for housing, allowing those who could not afford to retain their homes to acquire them. According to analysts, today’s market does not have the same circumstances.
According to analysts, today’s market does not have the same circumstances. Capital Economic forecasts that mortgage rates would increase to 6.5 percent by 2023. According to Matthew Pointon, a senior property economist at Capital Economics, if home price growth follows our earlier predictions and declines to zero by mid-2023, mortgage payments would remain above their mid-2000s peak until mid-2023.
“That looks unsustainable and house prices are therefore set to fall. However, our previous point about a lack of forced sellers remains. Therefore, we expect lower home demand to lead to a relatively small fall in house prices, with annual growth dropping to -5% (year over year) by mid-2023,” Pointon added. “That would bring the mortgage payment burden back under the mid-2000s level by the start of 2023.”
References
https://www.zillow.com/research/home-value-sales-forecast-july-2022-31240/
https://www.zillow.com/research/daily-market-pulse-26666/
https://www.zillow.com/research/zillow-2022-hottest-markets-tampa-30413/
https://www.zillow.com/research/buyers-consumer-housing-trends-report-2021-30039/
https://www.capitaleconomics.com/publications/us-housing/us-housing-market-update/surge-in-mortgage-rates-makes-house-price-falls-likely/
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