Real Estate Forecasts For Next 5 Years

Here is a summary of several experts making their real estate forecasts for the next 5 years.

 

KEY TAKEAWAYS

• Forbes recent 5-year forecast of our housing market predicts falling prices over the next 12 to 18 months.
• Yet, the overall returns over the next 5 years could be 15% to 25%.
• However, their forecasts may be volatile.
• Bankrate also made their 5-year forecast.
• Bankrate sees California experiencing the highest home price drop in 2023.
• Zillow surveyed 107 experts with the most predicting a buyers’ market in 2023.
• The Zillow panel predicts rent growth and inflation will outpace stocks in 2023.
• No one is predicting a real estate market crash.
• Find out what types of housing the building industry will focus on next.

 

Real Estate Forecasts For Next 5 Years by Forbes

 

Forbes published their 5-year forecast on November 15, 2022. Here is a summary:

• They recognize the current slowdown with falling prices over the next 12 to 18 months;
• Overall returns for the next five years could be from 15% to 25%;
• However, expect these predicted returns to become “lumpy”; and
• Investors can expect “volatility” during the near future.

Also, Forbes warns viewers that “no one has a crystal ball” as to what the future holds for real estate investments. After explaining how the recent pandemic disrupted the real estate market now that the pandemic seems under control here are each year’s predictions.

 

Year 1

 

Given the current high inflation and interest rates causing mortgage rates to climb, expect a slow market during the next year.

The Federal Reserve (Fed) has made four straight 0.75%-point hikes to combat high inflation. Also, Freddie Mac data shows about a 7% interest rate on a 30-year fixed mortgage. Only a year ago, it was around 3%.

Thus, first-time home buyers and would-be movers will suffer high monthly mortgage payments during the first year. An example is a $300,000 at a 30-year fixed rate mortgage at 2.98% a year ago only paid $1,262 per month. The same mortgage currently increases the monthly payments by $750 to $2,012.

Also, Forbes points out that the extra $750 a month led Goldman Sachs to project a decline in property prices from 5% to 10% over the next year in the U.S.

 

Year 3

 

Forbes relies on the same Goldman Sachs research predicting the housing market to “bottom out in late 2023”. Goldman expects prices to level off by mid-2024.

A recent speech by Fed Chairman Jerome Powell suggests interest rates remain high and peak at around 5% by the end of 2023.

Note: The Fed interest rates only involve banks lending to other banks which is different from mortgage rate interest. While rising bank interest rates usually affects mortgage rates, they don’t directly cause them. 

Also, Forbes points to the current layoffs in the tech industry caused by rising interest rates and inflation. The layoffs will cut down on operating expenses allowing tech companies to “improve their bottom line” and stabilize around the middle of next year.

Fornes expects the housing market to follow the same trend. Rising mortgage rates mean fewer qualified buyers and fewer buyers wanting to pay higher monthly payments. This will put pressure on home sellers to cut their prices.

Lower home prices will encourage sellers to use their cash equity to buy another home with a higher down payment to soften the higher mortgage rate. Investors will take advantage of the falling prices.

Yet, many home buyers will hold off on buying until housing becomes affordable. This will lower the number of buyers placing more pressure on sellers to reduce their prices.

Forbes also points out that the research firm Capital Economics predicts in 2024 and 2025 that gradually home prices rebound.

 

Year 5

 

It’s a challenge to predict what the housing market will look like in five years. Yet, some experts are making those predictions.

The National Association of Realtors (NAR) chief economist, Lawrence Yun predicts a 15% to 35% total price growth nationwide by year five. This includes a drop next year followed by a 2024 leveling out and gradual increases during the following three years.

In conclusion, Forbes advises home buyers to save up for a higher down payment next year or downsize to buy a temporary home. A few years later, homeowners can use their equity for a high down payment when larger homes become affordable.

 

Real Estate Forecasts For Next 5 Years by Bankrate

 

Bankrate published its 5-year real estate forecast in November 2022. Describing a “wild real estate ride over the last few years” the recent mortgage rate hikes became the largest in the last 20 years. Thus, the housing market slowed down. Despite this, home prices remain high.

Besides predicting what the housing market will do in 2023, Bankrate made its forecast over the next five years.

Bankrate sees California experiencing the highest home price drop in 2023 because “it’s so expensive”. Expect California home prices to drop by 10% in 2023.

 

Got Questions?

 

 

Will the Housing Market Crash in 2023?

 

No, according to Bankrate because while home sales will slow down, even a 10% fall in prices is not enough for a crash. Generally, a real estate market crash occurs when prices drop at least by 30%. Crashes occur with an oversupply of houses not selling. Currently, the housing inventory is too low for a crash.

 

What Types of Homes will be Built in the Future?

 

The pandemic followed by high inflation, interest, and mortgage rates changes the housing construction landscape.

So, what to expect for the future new housing construction industry?  

 

Home Offices

The remote workers’ industry sprang up during the pandemic business lockdowns. Yet, even as businesses opened again, many of their workforces remained working at home.

Even a “hybrid” mix between work at home and the office leaves room for new houses featuring trendy home offices. This is especially true in the suburbs where long commutes to work no longer are a must or required every day.

 

Multi-Family Homes

High mortgage rates mean fewer buyers of single-family homes. Bankrate points out that the new construction of single-family homes decreased over the last four months. In contrast, for multi-family homes, new construction is increasing.

It makes sense. The growth of multi-family homes is based on being more affordable than single-family homes. Apartments are cheaper than detached homes. Also, municipalities seeking affordable housing to relieve shortages favor the multi-family market.

 

Recent Zillow Survey Real Estate Forecast

 

Zillow conducted a recent survey of real estate experts who predict a buyers’ market in 2023. They focused on the coming year and came up with these forecasts:

• All 107 surveyed forecast large home price drops in 2023;
• Most experts (56%) predict a nationwide buyers’ market in 2023;
• Metros in the Midwest and South will see fewer price declines in 2023; and
• Rent growth and inflation will outpace stocks in 2023.

 

Real Estate Forecast For Next 5 Years – Conclusion

 

Here’s a summary of our real estate forecast for the next 5 years:

• As you viewed above, expect a home buyers’ market in 2023;
• California will experience the highest home price drop in 2023;
• No one predicts a real estate market crash;
• Yet, the market will balance itself after 2023 with overall returns in the next 5 years that could be 15% to 25%; and
• The building industry will focus on including home offices and increased multi-family housing.

 

Take Advantage of the 2023 Home Price Discounts in San Diego

 

If you want to buy a home in San Diego County find out about the most recent housing market trends.

 

Work with the Best Realty in San Diego

 

Best in San Diego: Big Block Realty is also recognized in 2022 as the best brokerage in San Diego for four straight years (2018 – 2021) by the LocalBest.com site.

Top 50 in the U.S.: Big Block Realty is recognized as the 49th Best Independent Real Estate Brokerage in the U.S. out of 106,000 real estate brokerages by

The Wall Street Journal partnering with Real Trends Rankings.

Big Block Realty provides you with experienced Realtors throughout San Diego County. Our experienced Realtors keep up with current market prices and trends to give you the best advice. Find your ideal home at the best price!

Contact us today to learn about San Diego home prices dropping and the best neighborhoods to find them.

 

Steven Rich, MBA – Guest Blogger

 

 

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