The forecast for the national housing market in the next five years

It’s been a wild real estate ride over the last few years. After a hot market characterized by bidding wars, low interest rates and elevated prices, mortgage rates rose to a 20-year high, causing both buying activity and purchase prices to slow.

With inventories still low, home prices remain high, including in the Philadelphia area.

There are many predictions about where the housing market will go in 2023. But what’s further out? Because buying a house often requires long-term planning. We asked several housing experts for a five-year forecast of the housing market. Here’s looking at you, 2027.

But first a snapshot of the national residential real estate scene as of autumn 2022.

Selling price of the house: According to National Association of Realtors (NAR) data from September 2022, the median selling price for existing homes increased by 8.4% year-on-year to $384,800. For new homes nationwide, the current average selling price is $470,600 — about 14% up from a year ago, says Danushka Nanayakkara-Skillington, associate vice president, forecasting and analysis for the National Association of Homebuilders (NAHB).

Inventory: Though housing supply is higher than it was in January 2022, it remains historically low, says Lawrence Yun, NAR’s chief economist and senior vice president of research. The inventory of unsold standing investments as of September 2022 was at a 3.2 month supply.

Days at the market: With inventories still tight, homes continue to sell fast. In September 2022, the average number of days in the market for homes sold ranged from 13 to 23, depending on price, according to September NAR data. In a more typical market, it’s 45 days, Yun says.

Sold houses: Fewer existing properties are being sold nationwide. According to September NAR data, the seasonally adjusted total in 2022 fell to 4.71 million in September from 6.49 million in January. Meanwhile, new single-family home sales in July 2022 were at a seasonally adjusted annual rate of 511,000 — down 29.6% from July 2021, according to the US Census Bureau and Department of Housing and Urban Development.

Mortgage rates for 30 years: According to Freddie Mac, the current average 30-year fixed-rate mortgage rate as of November 10 was 7.08%, the highest in 20 years.

New home begins: According to Nanayakkara-Skillington, the seasonally adjusted annual growth rate for new single-family home construction is 892,000, down 18.5% from a year earlier.

Mortgage rates could continue to rise for a few weeks or months, Yun says, adding that 7% is likely to be the level for the rest of this year and most of next year. Within two years, the rate should return to 5.5% or 6%, he adds. Nanayakkara-Skillington agrees, predicting rates will fall to around 6% by mid-2024.

Yun anticipates no or minor changes in purchase price tags nationwide over the next year, with increases or decreases of about 5%. The only exception, he says, is California, where the market could see 10% declines: “Because it’s so expensive, California is always the most vulnerable to changes in interest rates.” Overall, he expects stock prices to rise by a total of 15% to 25% five years from now.

Although the residential real estate market has bubble-like real estate, it shouldn’t burst violently, Yun expects. Although he predicts sales will hit a low of just 5.3 million units next year, he predicts a gradual increase thereafter to 6 million units annually by 2027.

Despite higher mortgage rates, home prices are still above where they were a year ago, he adds. Even if they drop 5% next year, that’s far from a crash — which is marked by a one-third drop.

“A 30% drop isn’t going to happen because the stock isn’t enough,” he says. “If there is an oversupply, a crash happens.” He assumes that the housing shortage will continue this year, with the supply being balanced out by five years.

Yun expects the seller’s market to continue while the housing stock remains low. In five years, however, he sees a balanced market in which neither buyers nor sellers call the shots. Instead, the bargaining power between the parties will be more equal and will depend on the individual case.

Caroline Feeney, Editor-in-Chief of HomeLight, believes that the move away from the seller’s market has already begun. According to a recent survey conducted by the company, only 51% of HomeLight reps identified their current local market as a seller’s market. It also expects the market to be balanced within a few years.

As hybrid working hours become the norm and commuting becomes less relevant, Yun predicts the suburban market will continue to be strong. Meanwhile, 55% of top HomeLight agents believe the markets that have warmed up the fastest during the pandemic (including Austin, Phoenix, and Boise) are likely to be the first to cool and post the biggest declines during a market correction says Feeney. Yun expects growth in areas with increasing populations, namely the Carolinas, Florida, Texas and Tennessee. Nanayakkara-Skillington notes that 50% of new single family home construction is in the south to support his prediction.

The number of single-family homes under construction has declined over the past four months. In contrast, the number of multifamily homes under construction has increased in recent years, says Feeney, who attributes this growth in part to their lower prices — apartments tend to be cheaper than single-family homes — and the pressure on municipalities to address shortages and provide more affordable housing.

However, with high mortgage rates and inflationary building material prices, Nanayakkara-Skillington expects the growth of the apartment building market to stabilize within a few years, with new construction falling by 8% in 2023 and another 5% in 2024.

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