predictions for housing market

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predictions for housing market

predictions for housing market If you’re thinking about buying or selling a house right now, you’re not alone. The housing market has seen a lot of unusual trends in the past couple years, and it’s no surprise things have been pretty weird! And it makes sense that you’d want the latest update on what’ll happen in the market before you decide to buy or sell. The truth is, housing market predictions are about as reliable as weather forecasts. The real estate pros make their best forecasts based on data, but no one can know what’s going to happen with 100% accuracy.

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But even if you don’t know for sure, you can check out what the experts are saying and make some pretty good guesses. Just remember, a housing market forecast can only give you an idea of what to expect if you buy or sell a house in the coming months. You never want to let a market prediction control your housing decisions . . . only your personal situation and finances should do that!

With that said, here’s my real estate market forecast.

Housing Market Prices and Sales

Okay, first things first: 2022 is not 2021. The crazy trend of houses getting multiple offers and selling for thousands of dollars over asking price within hours of going on the market is pretty much over. But the U.S. real estate market is still strong. It’s just not crazy anymore. And really, crazy just adds an extra level of stress to buying or selling a house.

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Real Estate Market in 2022 in the Third Quarter of 2022

That said, home prices are pretty much determined by supply and demand. And since there’s still strong buyer demand and a shortage of homes for sale, prices aren’t going to plummet. They’re softening a bit—but they’ll still be higher than they were at the start of this year. The median sales price of existing homes was $403,800 in July. That’s up 10.8% from the year before.1

This story is part of a series that asks housing experts to give their forecast for the next five years, how investors are impacting the market, and what state or federal intervention, if any, is needed.

The housing market appears to be operating without brakes as home prices continue to climb–the national median listing price saw another double-digit increase in April, climbing to $341,600. in Even with April’s 19.1% jump from a year ago mortgage rates continue to tick up, and buyers are not backing down.

As more signs indicate the housing market is on a fast-paced upward trajectory, many are wondering: Are we entering a housing bubble? And will the market crash or at least, deflate at any point in the near future?

Forbes Advisor asked nearly a dozen housing experts what their forecast is for the housing market in the next five years. While most experts expect homebuyer demand to continue there are some warning signs that home prices could falter amid rising inflation and geopolitical uncertainty.

Are We Headed Into a Housing Bubble?

The Federal Reserve Bank of Dallas identified signs of a “brewing U.S. housing bubble” in a blog post at the end of March. Though the sharp increase in home prices in itself does not indicate a bubble, the report said, there are other fundamental factors to consider, including “shifts in disposable income, the cost of credit and access to it, supply disruptions, and rising labor and raw construction materials costs are among the economic reasons for sustained real house-price gains.”

What causes the housing market to be “unhinged” from those fundamentals, is when “there is widespread belief that today’s robust price increases will continue,” the Dallas Fed report said. “If many buyers share this belief, purchases arising from a ‘fear of missing out’ can drive up prices and heighten expectations of strong house-price gains.”

Even though the report called the current housing market “abnormal,” the authors concluded that “there is no expectation that fallout from a housing correction would be comparable to the 2007–09” crisis in terms of its magnitude.

“Household balance sheets appear in better shape, and excessive borrowing doesn’t appear to be fueling the housing market boom,” said the report, adding that market participants and regulators are better equipped with tools and early warning detectors to thwart such a crisis.

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Why the Housing Market Will Likely Stay Hot

If you were hoping for a major downturn to snag a cheaper home, think again. Most housing experts are predicting the market to remain strong for a while for several reasons.

1. Millennial Demand for Housing is Up, With Gen Z Right Behind

The number of potential homebuyers is plentiful, with Americans who are either Millennial-aged or younger making up half of the U.S. population, or 166 million as of July 2019. This is significant because first-time homebuyers represent the largest share (31%) of people purchasing homes, according to data from the National Association of Realtors (NAR). And most first-time buyers are younger than 40, which means the buyer pool is deep–a good indication that demand will remain strong, especially since housing inventory is at historical lows.

“We won’t see a downturn because the housing market saw little increase in inventory for the past ten years. In a few years, Gen Z will be turning 30, and more financially ready to become homeowners than Millenials were at their age,” says Polina Ryshakov, senior director of research and lead economist at Sundae, a real estate marketplace for distressed properties. “This means that the demand for homes will be as high, if not higher, while inventory will still be behind in the demand.”

2. Supply Can’t Keep Up With Demand

The severely low supply is also helping fuel demand, and higher home prices, which is another reason why housing experts say the market will remain strong for years to come.

“The supply-demand imbalance is the primary reason home prices have escalated so rapidly,” says Rick Sharga, executive vice president at RealtyTrac. “And after not building nearly enough houses for the last decade, homebuilders will take several years at least to add enough new supply to balance the market.”

In a balanced market, the months of supply would be around six months– the time it would take to deplete all homes for sale at the current sales pace. But today’s market has only 1.7 months of supply, showing a drastic imbalance in favor of sellers.

It is a helpful sign that new home construction climbed at an annual rate of 6.8% in February, the fastest growth since 2006. But the nearly 1.8 million new homes starts are unlikely to put a dent in home prices.

“It will take time to reduce the housing stock debt we have accumulated,” says Odeta Kushi, deputy chief economist at First American Financial Corp. “The imbalance will continue to put upward pressure on house prices, even if they moderate from the peak pace of growth in 2021.”

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3. Borrowers Are Less Likely To Default On Their Mortgages

Among the differences between today’s housing market and that of the 2008 housing crash is that lending standards are tighter due to lessons learned and new regulations enacted after the last crisis. Essentially, that means those approved for a mortgage nowadays are less likely to default than those who were approved in the pre-crisis lending period.

It’s rare today to come across a lender offering so-called “no-doc loans” where the applicant did not have to provide documentation of income—a common practice before the housing crash. Also, many loans backed by the government have a certain set of standards, like minimum credit score and down payment requirements. And regulators now expect lenders to verify a borrower’s ability to repay the loan, among other standards.

There was more than $1 trillion in new mortgage originations in the fourth quarter of 2021 with 67% of those mortgages going to borrowers with credit scores exceeding 760. This score is considered “very good,” according to FICO.

“Lending standards have gotten tighter and credit scores for new mortgages are much higher on average now than they were in the early 2000s,” says Nicole Bachaud, an economist at Zillow. “What’s much more likely is a gradual slowdown in the pace of price appreciation where home prices continue growing, just not as fast as they are now.”

4. Warning Signs That Could Dampen the Housing Market

Murmurs of a recession have breached the surface of what’s otherwise been described by many observers as a “strengthening economy.” Inflation started rising last year, setting off alarm bells as consumer prices began to climb.

In response to the inflation hike, the Federal Reserve raised its federal funds rate in May—the biggest Fed rate hike in 22 years—a sign there could be a slowdown. While the federal funds rate does not directly impact long-term mortgage rates, it does have an effect on short-term rates like credit cards and

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adjustable-rate mortgages (ARMs). Higher interest rates could trigger a slowdown in consumer spending.

Goldman Sachs projects U.S. GDP for the end of 2022 to expand by a mere 1.75%. Additionally, economists at Goldman Sachs Group estimate up to a 35% chance that the economy will go into recession, which would impact the housing market.

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