Source: Capital.com —
US house prices are set to decline in the next few years after a 40% boom during the Covid-19 pandemic, with rising interest rates increasing the cost of mortgages for new buyers. However, prices are unlikely to fall as they did during the 2008 market crash, as lending standards have become more robust.
What is the state of the US housing market? What do analysts expect for 2023 and beyond? Here we take a look at US housing market predictions for the next 5 years.
What drives US housing prices?
Housing prices in the US, as in other countries, are driven by the supply of properties on the market, as well as interest rates, which are used as a basis to set mortgage rates and therefore are an important factor in real estate market predictions.
US house prices fell 30% from the peak of the market in 2007 to the lows five years later. Prices fell by the fastest pace ever over a one-year period during the financial crisis, dropping 12.7%, as the market became distressed with forced sellers, mortgage defaults and home foreclosures.
House prices were driven higher during the Covid-19 pandemic by record low borrowing rates, encouraging purchases by first-time buyers and a lack of supply because of underbuilding. Favourable age demographic trends also contributed to demand.
The median US existing home price climbed by 16.9% to $346,900 in 2021, according to the National Association of Realtors (NAR), with sales of 6.12 million reaching their highest level since 2006, during the previous market boom.
The market in 2021 was driven by record-low interest rates, strong growth in prices and rentals for single-family homes, low foreclosure rates and the 15-year high in sales. Houses sold rapidly and frequently over their listing prices.
US housing market boom halts in 2022
The pandemic-driven boom came to an end during 2022. While the overall home price is estimated to be up 9.6% for the year, according to the NAR’s housing market predictions, prices showed signs of decline later in the year. Pending home sales fell in November for the sixth consecutive month, down by 4% from October.
NAR’s chief economist Lawrence Yun explained:
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With building costs high, housing demand strong, and a shortage of affordable housing I doubt I’ll see a sharp decline in home prices. Keep in mind theres plenty of people working that desire homes. Plus people with really low mortgage rates may be inclined to stay put. Thats not a driver of lower home costs. Short of some catastrophe I don’t see any quick change in most markets. I will be curious to see if someone comes up with a plan to incourage AFFORDABLE housing. That’s something in really short supply.