Housing Market Predictions: The Real Estate Forecast for the Next 5 Years

October 30, 2023 - 12 min read

The year 2023 has been a rough one for many home buyers. That’s because home prices and mortgage rates are unaffordable for many. At the same time, a dearth of housing supply has amped up competition from rival purchasers, making it more challenging to find the right property. Many buyers and sellers are asking a fair question: Will real estate matters improve anytime soon?

That logical query made us curious, as well. But we weren’t simply looking for short-term answers. We wanted to know how the national market might shake out in the long term, too. So, we reached out to a number of experts for their real estate forecast for the next 5 years.

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National real estate market numbers and trends

Prior to examining the predictions for the real estate forecast for the next 5 years from the pros, it’s helpful to assess the current state of the housing market across the country.

Based on the most recent data from the National Association of Realtors (NAR), the median sales price for existing homes has risen by 2.8% compared to the previous year, reaching $394,300.

There’s also been a 2% reduction in existing home sales, leading to a seasonally adjusted annual rate of 3.96 million. This reflects a 15.4% decrease compared to the same period in the previous year. The inventory of unsold existing homes has climbed by 2.7% from the previous month, totaling 1.1 million homes at the end of September. This equates to a 3.4-month supply at the current monthly sales rate.

Here’s a quick rundown of other current key numbers that tell us where the national housing market is at, based on the latest data from the NAR, Redfin, Freddie Mac, and The Mortgage Reports:

  • $394,300 – median existing-home sales price (up 2.8% year-over-year)
  • 21 days – average number of days existing homes remained on the market in September (up from 19 days a year ago)
  • 31.2% – share of homes selling above list price (up from 30% a year ago)
  • 29% – percentage of home sales coming from first-time buyers (down from 30% in July)
  • 7.63% – average conventional 30-year fixed mortgage rate at the time of this writing
  • $40,000 – amount of purchasing power a homebuyer on a $3,000 monthly budget has lost over the past year

However, when it comes to gaining a comprehensive understanding of the situation, raw statistics only offer a partial picture. To dive deeper and ascertain the national housing market’s current position as well as anticipate the future trajectory of rates, prices, inventory, leverage, and other crucial indicators, we sought the perspectives of a diverse group of industry authorities. You can find their valuable insights on the real estate forecast for the next 5 years below.

Current housing market overview

Before diving into expert insights about the real estate forecast for the next 5 years, we first asked our panel to put matters in proper perspective. Here’s what they had to say about the present state of the real estate housing market across the country.

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Clifford Rossi, finance professor, University of Maryland’s Robert H. Smith School of Business: “The US housing market is buffeted by two drivers: high interest rates and low housing inventory. Both have significantly increased the cost of housing and created the worst affordability crisis in memory. Higher rates have effectively stranded many homeowners with low-rate mortgages from putting their homes up for sale, and that phenomenon exacerbates the housing supply crunch. Home prices have remained well above long-term fundamentals in many metro areas, with some areas seeing further pressure from pandemic-era demographic shifts that have occurred in certain high-cost densely populated areas to other markets in Texas, Tennessee, and Florida, for example. Financially vulnerable segments, such as low- and moderate-income and minority borrowers, are most affected by these headwinds. Little relief on either supply or mortgage rates is expected until inflation moves back to the Fed’s 2% target. Mortgage originators are under severe pressure financially with non-depository mortgage lenders most vulnerable. The mortgage market is experiencing a dramatic downturn with refinances at historically low levels, which if it continues, only puts a further drag on the overall economy in 2024 that will face several risks next year.”

Rob Barber, CEO, ATTOM: “The market is in flux at this point after a one-step-backward-one-step-forward year and has been pushed and pulled by multiple forces that could swing things either way in the coming months. This spring, the median price nationwide for single-family homes and condos spiked 9%, sending values up almost everywhere in the nation, based on our data. The increase then settled down to 2% over the summer. Both of those gains were within the bounds of what is often seen in the second and third quarters of any year—a spike in the second quarter followed by smaller increases in the third—making the 2023 buying season a normal one. But the recent increase followed a highly unusual 8% drop-off from the second quarter of last year through the first quarter of this year, which happened during a time of rising mortgage rates and high consumer price inflation. The market hadn’t seen that kind of pattern since before it started to recover from the aftermath of the Great Recession more than a decade ago.”

Albert L. Lord III, Founder/CEO, Lexerd Capital Management: “The real estate market is supply-constrained, reaching levels of unaffordability and showing signs of perpetual unfulfilled demand. High mortgage rates that touched 7.8% have created a serious inventory problem and, coupled with limited new construction, have pushed median prices up by 17% relative to last year. Households interested in moving up in the real estate market cannot afford the increased interest rate burden; thus, the supply of existing homes has been reduced by almost 42% compared to the pre-pandemic levels. Total construction for residences put in place has anemic growth of 1% relative to 2022 and housing starts at 1.23 million are below last year’s trend, which are not enough to resolve the undersupply problem. Buyer interest remains strong, with 44% of homes for sale receiving three or more offers and almost 37% of properties selling above their list price. While local market factors such as county regulation, school quality, and new construction influence supply, the trend in building permits is downward with permits reaching 1.54 million in August, down from 1.7 million a year ago.”

Dennis Shishikov, adjunct professor of economics at City University of New York: “As we sit here in October 2023, we’re seeing quite a fascinating scenario unfold. Home prices have been cooling off due to rising mortgage rates and falling interest from buyers. Inventory levels are also rising, putting additional pressure on prices. The rising mortgage rates are dampening buyer interest, making the market cool off.”

Jay Garvens, business development manager at Churchill Mortgage: “The national real estate market is in a state of flux and trending downward. I believe this is the case for two reasons: reality and consumer sentiment. The reality is simple–interest rates, inflation, and home prices are still high. Concurrently, inventory, sales, and buyer interest are still down. Consumer sentiment is a trickier component to navigate. It is a strong but invisible force, and there are currently several realities dragging it down, including high interest rates, persisting inflation, high personal and national debt, and political chaos, without enough bolstering it. It’s time for people to tighten their belts.”

Will housing prices drop in the next 5 years?

While the real estate forecast for the next 5 years varies among experts, the consensus is that home values are expected to continue their upward trajectory, albeit at a more moderate rate of appreciation.

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Selma Hepp, chief economist for CoreLogic: “Home prices have held up, mostly due to historically low inventories, and are likely to continue showing year-over-year gains given the strong home price growth earlier this year. CoreLogic expects home price growth to accelerate slightly through the end of this year and slow back down. Overall, we expect about a 3.5% average home price growth increase through 2024.”

Jason Gelios, Realtor, Community Choice Realty: “I predict homes will continue appreciating between 2% to 4% a year over the next 5 years. This single-digit growth is unlike what we’ve seen regarding the double-digit increases in recent years.”

Jay Sanders, owner of Castle Dream Construction: “Housing prices are set to gently rise over the next 5 years due to high demand, low supply, and small interest rates. However, growth speed might change based on the area and the economy’s health. Factors that could change housing price growth in the next 5 years include the economy’s health, interest rates, inflation, government rules, and natural disasters. If you’re looking to buy a home, research and understand what could affect housing prices in your area.”

Shirshikov: “Predicting housing prices is a bit like predicting what color the sunset will be six months from Tuesday. But, given current trends and economic forecasts, it’s plausible we’ll see a steady, though more moderate, decrease over the next couple of years. Why? Continued increase in inventory and falling demand driven by higher mortgage rates. But here’s the kicker: I anticipate a leveling off as the economy stabilizes and mortgage rates start to come down.”

Lord: “The rate of growth in home prices will decline in the coming years with the expectation for a 2.5% increase in 2024, 3% increase in 2025, 3% increase in 2026 and 2027, and 2% rise in 2028. The projected slowdown in housing prices is attributed to future improvements in new construction deliveries, the expectation of lower interest rates by 2025, and demographic changes as older Americans have started downsizing and improving inventory supply. Affordability will continue to be a factor and will contain the growth in housing prices.”

Will mortgage rates come down in the next 5 years?

Housing market experts expect a gradual mortgage rate decline from current levels over the next 5 years, with fluctuations along the way influenced by factors such as inflation, Federal Reserve policy, and economic growth. Here’s what some mortgage pros had to say:

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Lord: “For the rest of 2023, I predict rates for the 30-year fixed-rate mortgage will average 7.3%, followed by 6.1% in 2024, 5.5% in 2025, 5% in 2026, 4.5% in 2027, and 4.5% in 2028. The decline in mortgage rates is in line with expectations for declines in interest rates after 2025 and the current term structure of interest rates in the 10-year bond.”

Shirshikov: “Over the next 5 years, I’d expect a gradual climb. However, this won’t be a straightforward journey — there’ll be dips and rises, much like a scenic drive through the mountains. Buyers need to keep an eye on this, as even a small increase can mean a bigger chunk out of the wallet over time.”

Gelios: “I predict mortgage rates hovering around 7% to 8% for the next 5 years, with a small chance of them dropping below 7% at times. Fast forward to 2026-2027, and I would imagine they would decrease back to the 5% to 6% range.”

Sanders: Mortgage rates are expected to rise in the next 5 years as the Federal Reserve raises interest rates to combat inflation. However, increases should slow between 2024 and 2026, and rates may even decline in 2027. Among the factors that could impact mortgage rates in the next 5 years are inflation, Federal Reserve policy, and economic growth. Homebuyers should consider locking in a low mortgage rate now, as rates are expected to rise soon.”

Will housing inventory increase in the next 5 years?

When it comes to the real estate forecast for the next 5 years, some experts foresee a small increase in available homes while others believe that new construction might not keep pace, leading to a continued shortage of available properties.

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Gelios: “Once mortgage rates show signs of decreasing, you will see home buyer and seller confidence increase, resulting in an increase of the number of homes hitting the market, with buyers wanting those homes. Beginning in 2024, you will have a group of people who have been acclimated to the new higher rate landscaping and maybe succumbing to it.”

Shirshikov: “Over the next 5 years, I foresee inventory levels gradually increasing. There’s significant pressure for new construction, and developers are catching up, albeit slowly. Plus, as the economy stabilizes, more people might be tempted to sell, balancing out the scales a bit. But, this won’t be an overnight change; patience will be the name of the game here.”

Lord: “The current inventory at 1.1 million units is not expected to change in 2024. I expect a supply increase of 5% in 2025, 7% in 2026, 8% in 2027, and 5% in 2028. Projected inventory increases are attributed to improvement in mortgage rates, which will motivate current homeowners to move up the ladder of housing and demographic shifts as older Americans are downsizing.”

Sanders: “I expect fewer houses for the next 5 years due to rising construction costs, supply chain disruptions, and zoning restrictions. But by 2027, more houses might be available as builders catch up with demand. If you’re looking to buy, get ready for competition, as inventory will remain low.”

Will we shift into a buyer's market?

The real estate forecast in the next 5 years predicts a range of possibilities: a continued sellers’ market with low supply and high demand, potential shifts towards a buyers’ market due to new construction and rising mortgage rates, and a projected balance between supply and demand by around 2027 or 2028.

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Hepp: “The market will remain a sellers’ market as the number of homes for sale remains along historical lows. Nevertheless, with mortgage rates continuing to climb, more sellers will start lowering their prices, particularly if they are pressed to sell. That may be a relief for buyers.”

Shishikov: “Right now, sellers are in the catbird seat. But over the next 5 years, I expect we’ll see shifts between a sellers’ and buyers’ market, almost like seasons. As new construction increases inventory and mortgage rates nudge upward, we might see a slight tilt toward a buyers’ market. However, it’s also about geographical location. Some areas might remain solidly sellers’ markets due to continued high demand and low supply, while others could see an influx of properties tipping the scales in favor of buyers.”

Lord: “In the coming years, I expect the real estate market to be a sellers’ market until 2027 and 2028, when supply and demand will be closer to equilibrium. Improved inventory and lower rates will contribute to more balanced supply conditions.”

Sanders: “The housing market will likely favor sellers for the next 3 to 4 years because of the low demand and supply. But by 2027, things might be easier for buyers as more houses are built and mortgage rates decrease. Home buyers should be prepared for a competitive market and consider their financial situation before buying.”

Gelios: “The market began transitioning toward favoring buyers in early 2022. Fast forward to the next 5 years after the end of 2023 and you will see a continued transition toward a buyers’ market, especially if housing inventory increases.”

Will the housing market crash or suffer a recession?

Interested to learn which areas are safer to buy in for the foreseeable future? ATTOM provides insights. Here’s their list of the top 10 U.S. counties that currently pose the lowest risk of experiencing housing market downturns:

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  1. Chittenden County, VT
  2. Benton County, AR
  3. Fairfax County, VA
  4. Prince William County, VA
  5. Shelby County, AL
  6. Cass County, ND
  7. Middlesex County, MA
  8. Brown County, WI
  9. Rutherford County, TN
  10. Sarpy County, NE

In the latest update from ATTOM, it was revealed that some of the most high-risk markets (assessed based on factors like home affordability, foreclosures, and other metrics) in the country are presently located in New York City (with eight of the top 50 most vulnerable counties nationwide), Chicago (six counties), and Philadelphia (three counties). Additionally, six counties were identified in various regions of California, while most of the remaining 50 counties were situated in Indiana and along the East Coast.

Does the prevalence of these key markets being susceptible to potential price declines and foreclosures indicate a looming housing market downturn? For answers, we turned to our trusted experts.

Lord: “I predict no recession in the real estate market regardless of economic conditions. Absent catastrophic events, the lack of housing in general, strong formation of households, and favorable financing terms will all contribute to continued growth in the market.”

Hepp: “The housing market is already in a recession as both sales, originations, and inventory track along long-term lows. Nevertheless, a housing market crash, which would suggest a double-digit decline in home prices, is unlikely given low inventories.”

Sanders: “There is a low risk of a housing market recession or crash in the next 5 years due to low inventory, strong demand, and relatively low mortgage rates. However, buyers should be aware of risks such as rising unemployment.”

Gelios: “There’s a lot of talk about a housing crash, yet no indicators to back up that claim. We don’t have record job losses, declining home values, or bad mortgages being offered at scale. The lack of proper housing inventory is the main factor that is keeping the market from crashing.”

Shirshikov: “While it’s always possible, I don’t currently see a full-blown housing market crash on the horizon within the next 5 years. Yes, there may be some cooling off, particularly in areas that have experienced rapid and potentially unsustainable growth, but a nationwide crash doesn’t seem imminent. Several factors, like the gradual rise in mortgage rates and increasing housing inventory, might tame the market’s fervor, but these are natural market self-corrections, not crash precursors. The market is more resilient than people give it credit for.”

The bottom line: Real estate forecast for the next 5 years

Is it advisable for prospective homebuyers to make a purchase promptly or hold off? Will there be a significant reduction in home prices over the next new years that would make claiming a home a prudent decision? Our industry pros share their thoughts on the real estate forecast for the next 5 years:

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Lord: “Relative to 2021 through 2023, the real estate market is expected to slow down, not to crash. Still, prices will increase but not at the rates observed in the last two years. Housing construction will improve while costs and materials will make new housing expensive, approaching unaffordability levels. Demand will moderate, leading to a more balanced equilibrium and, thus, a slowdown in growth in real estate prices.”

Gelios: “I foresee the housing market experiencing a slight decrease in mortgage rates beginning in 2024 as the market favors more home buyers, although I don’t see them decreasing to the historic lows we experienced during the pandemic. We should also see an increase in housing inventory as seller confidence increases alongside decreasing mortgage rates.”

Shirshikov: “When it comes to the real estate forecast for the next 5 years, I’m cautiously optimistic. I believe we’re going to see a lot of ebb and flow over the next 5 years — some highs, some lows, but overall, a healthy market. Prices should continue to rise, though more slowly, and buyers might enjoy more options as inventory expands. But remember, real estate is profoundly local. What happens on a national scale can manifest differently in your backyard.”

Garvens: “The smart ones will buy in the years ahead and the fearful ones won’t. The greedy days of 2021 where most homes went well over asking price are forever gone, so in the fearful days of 2024 and beyond, the most astute home buyers will come out and make smart investments. When you find the right house in the right neighborhood that is $50,000 below 2021 value, buy it. Even if you have to pay $500 more a month to claim it, smart buyers will understand that they will be ahead of the market for the next 100 months. That’s a long time to sell, refinance, or pay it off.”

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Erik J. Martin
Authored By: Erik J. Martin
The Mortgage Reports contributor
Erik J. Martin has written on real estate, business, tech and other topics for Reader's Digest, AARP The Magazine, and The Chicago Tribune.
Aleksandra Kadzielawski
Reviewed By: Aleksandra Kadzielawski
The Mortgage Reports Editor
Aleksandra is the Senior Editor at The Mortgage Reports, where she brings 10 years of experience in mortgage and real estate to help consumers discover the right path to homeownership. Aleksandra received a bachelor’s degree from DePaul University. She is also a licensed real estate agent and a member of the National Association of Realtors (NAR).