5 Year Outlook for the Housing Market

Just as the housing market and stock market rocket to new price levels, we’re seeing more investors and buyers looking ahead to gauge when they should sell.

Almost on mass, they want every last red cent. Well, actually if they sell, there’s still nowhere to go. If new housing isn’t built, then selling their home doesn’t seem intelligent, whatever the cost. Most won’t tolerate the uncertainty in the next 5 years. And since housing construction won’t catch up for at least 5 years, prices are going to be high.

Watching the technical numbers won’t do much for you. All the pre-pandemic forecasts are horribly wrong. All the Trump euphoria is gone, replaced by a sober study of the trends and current statistics.

Does Buying a Home Within 5 Years Make Sense?

The fact you can’t afford the lofty prices in your city might be your saving grace. Home prices likely won’t fall, unless some government action brings the house of cards tumbling down. That could happen.

As home prices surpass their peak levels, you might be wondering if buying is a good investment. Will the housing market crash and will the stock market crash? Either event might ruin your personal wealth. 2007 wasn’t fun.

A look at the 6 month housing forecast is wise, and looking forward with an open mind to the next 5 years is wiser. So where would you start investigating the long term outlook for the US housing market, when such information may not be available? Fortunately, I’ve done some of the research work for you.

There are many housing market experts and each has their own view on market directions. Some are a little too dour (they forecasted a 2018 housing crash which didn’t happen), and others are perhaps too rosy (this bull market will end, or there will be a severe correction at some point).

We need a continuous prediction of the market in years 2022, 2023, 2024, 2025 and 2026 that includes demand estimates and supply estimates. It really is a demand vs supply issue, funded by estimates of economic growth, employment, wages, savings, and more.

If you’re thinking a housing market correction couldn’t happen, consider that when the economy sours, many experts will advise their clients to sell, sell, sell. They’ll over do it, in order to look smart and prescient. The markets really are emotionally loaded. It won’t take much to start a cascade of selling to unload stock or housing, after they’ve reached the peak.

Once values stop appreciating, investors lose interest and buyers will then wait until they bottom out. This colors the 5 year housing market forecast — as fearful people bail out of investments with no future.

5 Year Housing Market Outlook is Positive

If the President’s $2 trillion stimulus package is approved by congress, it will load in hundreds of billions into the economy for many years. That’s a consistent investment of funds into housing. It will raise housing demand pushing home prices ever higher. And of course, funds will flow into the DOW, NASDAQ, S&P and Russell 2000 as businesses benefit from this economic recovery. GDP is growing fast right now and could reach 10% by the end of 2021.

The outlook for the housing market to 2026 is rosy, especially for sellers. Financing looks good and plentiful, housing construction will pick up, and there are endless buyers, especially for single detached homes.

The fly in the economic ointment is out of control home prices leading to government action to reduce them. Since the economy and housing market will be moving so fast, the depressive government action, when it occurs will push the markets into a high speed wobble.

If interest rates rise, it will slow the housing market for sure, but more importantly it makes homeowners ready to jettison their now million dollar properties. If they’re able to buy another cheaper property being built somewhere. Once the selloff begins, it will really roll. Investors and home sellers are more strategic today. The fact you’re reading this forecast shows this.

In the past, few people understood the future or cared about it. They gave themselves to fate.

Housing Market Trends

  • unemployment is dropping for several years
  • GDP is rising for several years with a big boost in 2021 and 2022
  • Covid 19 pandemic will be gone by fall of 2021
  • interest rates will rise
  • lending criteria for banks will loosen for 2021, 2022, but then begin to tighten
  • work from home will remain a major trend but others will head back to the offices
  • government spending will be high for the next 5 years
  • taxes on big corporations are rising thus lowering wages and reducing competitiveness
  • small business will surge and new businesses will be formed
  • the S&P will flatten while the Russell 2000 small caps will improve
  • the number of home renters will grow strongly (home ownership too expensive)
  • inflation will increase and the cost of products and services will rise
    mortgage defaults will remain low for two years and then begin to grow (higher interest rates)
  • home prices will continue rising into 2022
  • friction with China will grow and tariffs will grow against China imports
  • global GDP will grow and international trade will increase
  • personal income and wealth will grow strongly in the next two years

Which US States Will Surge?

As this chart below shows, Texas is in for dramatic growth for many years. Its zero income tax, energy wealth, growing IT industry, and agricultural production will make it the top US state. Tennessee, North Carolina, Utah, Iowa will grow with Florida moderate, while California, Washington, New York and other high cost states will flat line.

Inman, in its essential guide, says small cities will boom in the coming years. They also suggest the number of real estate agents will shrink and receive lower commissions. That would mean those who excel at online real estate marketing might survive and thrive. They also feel real estate startups will flourish as a wave of venture funding seeks businesses.

Other states in the heartland will grow due to the low cost of living and low house prices in those states. Sellers want to sell their homes in cities and move to safer, quieter communities where they can work online.

Key Statistics in Charts:

Economic growth outlooks for the next 5 years, primarily because of strong latent demand, demographics, and continuous infrastructure stimulus spending.

GDP growth by state growth during last half of 2020
Screenshot courtesy of Statista
US GDP forecast to 2030.
GDP forecast to 2030. Screenshot courtesy of Statista.


Employment Rates USA
Employment Rates USA. Screenshot courtesy of Tradingeconomics.

Home Price 5 Year Outlook

In a controversial report, CoreLogic predicts home prices will only grow 3.3% to 2022. NAR has recently predicted 5.7% by year end. Yet prices have risen strongly this winter and spring. The pandemic is ending (buyers will return to the market) housing construction has been slowed, buyer employment and wages will rise, many will feel a home is still the best investment, and euphoria is a very likely mood in both the stock market and housing market.

A more likely scenario is the 10% growth this year, followed by slower levels through to 2026. As mortgage rates rise, the housing market will be highly impacted.

Millennial aged buyers are a big part of the story. 38% of home sales went to millennials in 2020. There’s so many of them getting married or just buying a house now, that this is going to power up the market for many years. As home construction picks up in the next 5 years, they will finally be able to buy one, albeit at a higher mortgage rate.¬† If you can’t buy a home, you may want to invest in builder stocks as the builders will thrive in the next 5 years.

Average Home Prices in Ten Years

By 2030, home prices will have risen substantially, and no one expects the price of real estate will decline. Land is a precious commodity. We will see digital technology make remote work more common. Living in the cities won’t be necessary, but most home buyers don’t buy far from where they and their families live. And that is what pushes prices higher in the cities.

10 year forecasted average home value by state
10 year forecasted average home value by state. Screenshot courtesy of Renofi
10 year forecasted average home value by top major cities.
10 year forecasted average home value by top major cities. Screenshot courtesy of Renofi

Mortgage Rate Outlook Next 3 Months

Yes, mortgage rates will rise, but a few percent rise should be still manageable for many, if they can find affordable homes to buy.

Mortgage rates next 90 days.
Mortgage rates next 90 days. Screenshot courtesy of the Mortgagereports.com

Housing Construction 5 Year Forecast

Statista isn’t quite as optimistic about housing construction. Yet with low interest rates and big demand, why would builders shy away from housing construction. I think this chart might be understating demand.

Review the current housing market report for more details on sales happening right now.

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