The US housing market has been on a roll in recent years. Historically low mortgage rates have driven home prices soaring, sparking a frenzy of buyer activity. But the tide appears to be turning. Rising interest rates have dampened buyer enthusiasm, leading to weak sales and questions about the future.
While the recent surge may be slowing, experts predict that home prices will rise more steadily in the future, albeit with regional fluctuations. Mortgage rates are likely to remain high compared to historic lows, impacting affordability for some buyers. But a gradual increase in housing inventory could give those still on the market some breathing room.
Let’s take a look at some of the experts’ predictions for the next two years for the U.S. housing market. We explore what will happen to home prices, mortgage rates, and housing inventory.
Housing market forecast for the next two years: good or bad?
House price prediction:
Home prices are a big focus in the U.S. housing market, and many are wondering whether the upward trend will continue. Experts offer a variety of predictions, with some nuances depending on location.
Moderate Rise: Many analysts expect a shift from dramatic price increases to a more gradual pace of increase, perhaps around 3% to 5% per year. This is due to the combined effect of higher borrowing costs and a potential increase in available housing. 2024: Home prices are expected to rise approximately 3% year over year by the fourth quarter of 2024 due to sustained demand and limited inventory. Forecasts for 2025 call for even more robust price increases of around 5% year over year by the fourth quarter. This growth can be attributed to revitalized buyer interest as mortgage rates fell, making home purchases more affordable with a number of limited price declines. Several experts have suggested that prices could fall slightly in some overheated markets, especially if mortgage rates continue to rise. However, these reductions are likely to be small and localized. Regional differences: Keep in mind that the housing market is not monolithic. Forecasts may vary significantly depending on the specific region. Regions with strong employment growth and limited inventories may see more stable or slightly rising prices, while regions with slower growth may experience more pronounced cooling effects. There is.
Mortgage interest rate prediction:
Mortgage rates are a major factor in the frenzy in the housing market, and recent increases in interest rates have had a significant impact on affordability. Experts offer some insight into what homebuyers can expect over the next two years.
Interest rates are likely to remain high: The consensus among most analysts is that mortgage rates are likely to remain above their record lows. The average 30-year fixed mortgage rate is projected to be between 6.1% and 6.8% by the end of 2024. Potential for fluctuation: Although a continued upward trend is expected, some experts predict that there may be periods of slight fluctuation in interest rates. Major forecasts indicate that interest rates will settle around 6.2%, and some sources have suggested that rates could fall to the high 5% range, depending on economic conditions. This may be affected by the release of economic data or policy changes by the Federal Reserve. 2025 and beyond: Mortgage rates will continue to trend downward and could average between 5.9% and 6.1%. The Mortgage Bankers Association (MBA) predicts that interest rates could fall to about 5.8% by the end of the year. Looking further ahead, some analysts believe that mortgage rates will continue to improve modestly over the next few years as economic conditions stabilize and inflation is subdued, leading to a We predict that loan interest rates could fall to approximately 5.0%. For some buyers. But some analysts say some buyers may choose to wait for interest rates to fall, which could ultimately lead to higher inventories and a more balanced market. Suggests.
Forecasting housing inventory:
Housing inventory has become a major concern for buyers in recent years. Short supply and increased competition led to bidding wars and soaring prices. Experts offer some insight into the future of housing stock.
Moderate growth expected: Many analysts predict a gradual increase in homes available for sale over the next two years. This can be due to several factors. 1. Changing market dynamics: Rising interest rates may incentivize some homeowners who have locked in very low interest rates to stay put. However, those facing life changes or financial pressures may decide to sell and increase their inventory. New construction: While not a major short-term solution, increased new home construction activity could ultimately contribute to a more balanced state of inventory levels. Regional differences: Like home prices, available homes for sale can vary by region. Regions with strong job markets and limited housing options may experience slower inventory growth than markets with a cooling housing sector. It’s not a buyer’s paradise (yet): managing expectations is key. While inventory growth is a positive sign, the pendulum is unlikely to swing completely to a buyer’s market over the next two years. Overall supply is expected to be below pre-pandemic levels.
For buyers, this can make the buying experience less rushed and give them more time to reflect. However, competition may still exist, especially when it comes to desirable characteristics.
Forecasting regional market fluctuations:
The U.S. housing market is a complex tapestry of regional trends. Although national forecasts provide a general outlook, significant variation is expected in different regions of the country. Experts predict the following for the regional market:
Sunbelt vs. Northeast/Midwest: Sunbelt regions (South and Southwest) are likely to continue to grow, although at a potentially slower pace. This is due to factors such as favorable weather, job opportunities that attract immigrants, and an increase in existing housing. In contrast, the Northeast and Midwest could be affected by more pronounced cooling, and some regions, particularly those with slower job growth, could potentially see slower price growth. It is possible that the price may drop slightly. Coastal and non-coastal areas: The affordability gap between coastal and non-coastal areas is likely to widen. Rising interest rates could drive up prices for some buyers in traditionally expensive coastal markets, leading to a more balanced market and even price correction. Conversely, non-coastal regions with lower living costs are likely to continue to experience steady growth. Hot and Cold Markets: “Hot markets” that have experienced explosive price increases in recent years may see price increases slow further significantly or even decline slightly. Conversely, markets that haven’t seen dramatic price increases may see prices become more stable or rise slightly, especially if the local economy is strong.
These are broad regional trends, and specific cities within each region may deviate from these trends based on local factors such as job market strength, new construction activity, and overall housing stock. Please note that there is
Latest Housing Market Snapshot: August 2024
Recent data from NAR provides a clearer picture of the current state of the housing market. Existing home sales fell 2.5% in August to a seasonally adjusted annual rate of 3.86 million. Sales decreased by 4.2% compared to a year ago.
The median sales price of existing homes increased 3.1% from August 2023 to $416,700, marking the 14th consecutive month of year-over-year increases. Prices increased in all four regions of the United States.
Interestingly, the total housing stock at the end of August was 1.35 million units, an increase of 0.7% from July and 22.7% from a year ago (1.1 million units). At the current sales pace, there will be 4.2 months worth of unsold inventory, an increase from 4.1 months in July 2023 and 3.3 months in August.
NAR Chief Economist Lawrence Yun said:
“August home sales were once again disappointing, but the recent decline in mortgage rates and rising inventory create a powerful combination that creates an environment for home sales to rise in the coming months,” said NAR Chief Economist Lawrence Yun. will be in place,” he said. “The home buying process typically takes several months, from the initial search to getting the keys to the house.”
Tips for buying and selling a home in the next two years:
Buyers: conquering the market in an era of high interest rates
Rising mortgage rates are creating challenges for buyers, but there are still strategies to navigate this market.
Get pre-approved: It’s important to know your budget in advance. Getting pre-approved for a mortgage will clarify your affordability range and strengthen your offer. Consider an adjustable-rate mortgage (ARM): ARMs offer lower initial interest rates compared to fixed-rate mortgages. However, keep in mind that your rate will adjust after a certain period of time, which can affect your monthly payments. Carefully evaluate your financial stability and long-term plans before considering an ARM. Consider financial assistance programs: For first-time homebuyers, a variety of government programs and down payment assistance initiatives can help close the affordability gap. Check your local and state programs to see if you qualify.
Seller: Stand out in a changing market
As the market cools, sellers must adapt their strategies to attract buyers.
Competitive Pricing: We conduct thorough market research to determine a fair and competitive asking price. Highly priced homes are likely to remain on the market longer. Increase your curb appeal: First impressions matter. Invest in landscaping, minor repairs, and repainting to make your home more visually appealing to potential buyers. Highlight unique features: Showcase what makes your property special. Do you have a beautiful backyard, a recently renovated kitchen, or a desirable location? Highlight these features in your marketing materials. Work with a trusted real estate agent: A skilled real estate agent can guide you through the sales process, provide valuable negotiation advice, and help you navigate changing market conditions.
Final thoughts:
This new situation brings both challenges and opportunities. It’s important for buyers to budget carefully, consider different loan options, and wait for the right time. Sellers should adapt their strategies by offering competitive prices and highlighting the unique features of their homes.
Overall, the U.S. housing market remains a complex system with regional differences and continuing economic impacts. A cautious approach is warranted, but the future is not all doom and gloom. Understanding trends and strategic planning can help buyers and sellers navigate this evolving market and achieve their real estate goals.
