What’s the housing market going to look like in 2025? What about in 2030?

Don’t we all wish we had a crystal ball? While there’s no guarantee what the future will look like, let’s review some data that can give us a pretty good idea.

First, let’s look at a few specific cities, then we’ll look at the market as a whole. Why? Because the housing market in some cities is more overheated than in others. This effects the short-term projections, even though it will likely shake out the same in the end.

Mortgage rates rose pretty sharply over the last few months, but have begun to cool. After nearly doubling over the course of a year, that pace as dramatically slowed.

In the most overheated markets, housing prices appreciation will slow, and may even drop a little, over the next year or two. Rick Palacios, Director of Research at John Burns Real Estate Consulting said “The consensus is most forecasters … are anticipating prices to either flatten and/or go down next year, especially in a lot of these way overheated markets.”

Rick explains that he expects home prices to drop 3-5% over the next year or two. Matthew Pointon, of Capital Economics also stated that they expect a small decline in home prices, up to 5% in the hottest markets and most popular pandemic destinations.

What are the “hot markets” they are referring to? First and foremost, Boise ID, followed by cities like Austin TX, Las Vegas NV, Nashville TN, Phoenix AZ and so on.

Yes, they’re including the Phoenix area.

There is some conflicting data, however, and it’s not likely this contraction will last all that long.

What’s driving the slow-down in the short term?

• Inventory is climbing. Realtor.com, Zillow.com and others all report around 15-20% increase in the number of homes listed in June. Since prices were driven up, in part, by demand far outpacing supply, this increase in supply is helping to cool the market and level off prices.

• Rising interest rates, spiking gas prices, and inflation have caused a bit of a “pause” for a number of buyers as they reassess what they can, and are willing to buy.

• CoreLogic, generally bullish on the housing market forecast, admits that much of the current US housing market is overvalued.

• The Federal Reserve Bank of Dallas, the most bearish prediction I could find, stated that “”Our evidence points to abnormal U.S. housing market behavior for the first time since the boom of the early 2000s. Reasons for concern are clear in certain economic indicators…prices appear increasingly out of step with fundamentals.”

What about the conflicting data?

• Despite climbing interest rates, some buyers hitting the pause button, and inventory picking up, the sale of new single-family homes in May rose by almost 11%.

• Supply is still well short of demand, and likely will be for a while.

• CoreLogic (hyperlink https://www.corelogic.com/intelligence/u-s-home-price-insights/) ultimately expects that home price appreciation is set to decelerate to a growth rate of about 5%, but not decrease in value. Mortgage Bankers Association expects prices to increase over 4% in the next year, and Fannie Mae suggests prices will rise as much as 11% in 2022, and over 4% in 2023.

So what does this mean for the future?

People will always need a place to live. Millennials and gen Z are entering the housing market in force. The fact is, in 8, 10, 12 years;

• Prices are likely to be higher than they are now. While prices are momentarily slowing, we still have a shortage of homes.

• Interest rates will reduce price growth in the short term, but the scales still lean toward demand over supply. Most forecasts predict this disparity will last 2-3 years.

RenoFi, recently pointed out that, in the last decade, housing prices rose nearly 50%, and looking at the data, indicate that trend will likely persist.

As mentioned, no one has a crystal ball, and we can’t predict the future. However, the sources I quoted and linked to above provide a credible analysis of past and present data and give insight into what future trends are likely to look like.

For those looking for additional info, here are some additional helpful links. As always, I f you have any questions, feel free to contact us.

https://www.cnbc.com/select/how-much-will-a-home-in-the-us-cost-by-2030/

https://fortune.com/2022/04/21/zillow-cuts-its-housing-market-and-home-price-forecast-for-2022-and-2023/#:~:text=Over%20the%20coming%20year%2C%20CoreLogic,%2C%20and%204.2%25%20in%202023.