With the way things are going in the real estate industry, property investors are wondering: what is the real estate forecast next 5 years?
Table of Contents:
- The Real Estate Housing Market 2022
- Mashvisor’s Real Estate Forecast Next 5 Years USA
- How Should Investors Respond to The Real Estate Forecast for the Next 5 Years?
Housing market predictions are quite common in the real estate industry, especially around the midyear and the last quarter of the year. These predictions are typically published by industry experts to give home buyers, sellers, and real estate investors a sort of heads-up going forward.
Housing market predictions 2022 came out as early as June 2021 for real estate website Mashvisor, and several similar articles and publications were published at different times throughout the remainder of 2021 and even into Q2 2022.
In this article, we will take time to see how the market is currently doing and find out what the next five years will look like. Investors might want to pay close attention to the things we will discuss. They might have some sort of bearing on their investment decisions for the next half-decade.
The Real Estate Housing Market 2022
Before we talk about the different predictions and concerns about the market, like when will the housing market crash or if we’re in a housing bubble, we need to understand where the industry is today.
Here are four characteristics of the US housing market 2022:
1. Rent Is Slowly Growing
One of the things that have kept the industry alive during the pandemic is rental properties. Because of the great demand for housing and a very limited national inventory, most folks are left with no other choice but to rent houses momentarily.
Since there is a limit on the US housing supply, most Americans looking to buy homes are faced with very stiff competition in almost all markets. On the other hand, a large number of folks don’t have the financial capacity to buy properties and cannot afford the current housing market prices. To address this need for affordable housing, a lot of investors invested in rental properties.
The pandemic has caused rent rates to soften during its peak but has since been on the road to recovery. In fact, rent prices have grown since February 2022, according to Mashvisor’s latest market data.
Here are a few examples of the rental rate differences three months can make:
- February 2022 Monthly Traditional Rental Income: $1,420
- May 2022 Monthly Traditional Rental Income: $1,664
- February 2022 Monthly Traditional Rental Income: $3,366
- May 2022 Monthly Traditional Rental Income: $3,292
- February 2022 Monthly Traditional Rental Income: $2,183
- May 2022 Monthly Traditional Rental Income: $2,297
- February 2022 Monthly Traditional Rental Income: $2,183
- May 2022 Monthly Traditional Rental Income: $2,348
- February 2022 Monthly Traditional Rental Income: $3,003
- May 2022 Monthly Traditional Rental Income: $3,544
- February 2022 Monthly Traditional Rental Income: $2,215
- May 2022 Monthly Traditional Rental Income: $2,243
- February 2022 Monthly Traditional Rental Income: $1,743
- May 2022 Monthly Traditional Rental Income: $1,884
Given the monthly rental income differences between February 2022 and May 2022, one will notice that the upward trend in rental rates is clear, with the exception of California and a few other states like Kansas, Louisiana, and Maryland.
Related: How to Find Rental Properties With a Good Cap Rate in 2022
2. The Mortgage Industry Is Still Tight
Mortgage companies and lenders still have very strict requirements for loan applications. Most of them will only deal with people who have a 720+ credit score and who can make a 20% down payment. Because the pandemic caused a lot of job losses which resulted in financial instability, lenders have become a lot warier about whom they lend money. While a lot of them understand the regular folks’ plight, they also need to ensure their business stays afloat during these trying times.
Even as the economy has reopened and is slowly regaining the momentum it lost with the disruption caused by COVID-19, lenders and mortgage companies are as stringent as they have ever been.
3. Mortgage Rates Are Increasing
While rent rates are steadily growing at a slower rate, mortgage rates, on the other hand, have surprisingly increased at a rate faster than most 2022 predictions. While predictions made about mortgage rates took into consideration the present global health crisis, industry insiders did not expect a war to break out between Russia and Ukraine.
We saw record low-interest rates in 2020 and for most of 2021. This has made it possible for a lot of Americans to purchase properties, with Millennials leading the way. 2020 closed with a low 2.68% rate with an annual average of 3.11%, according to Freddie Mac. In 2021, the rates started to go up while remaining below pre-pandemic rates, with December 2021 closing at 3.10% and a lower annual rate of 2.96%.
Because of this, 2022 mortgage interest rates were predicted to peak at 5% by the year’s end. However, because of certain factors like the war in Eastern Europe which affected the global economy, interest rates have now reached the predicted year-end number of 5% in May 2022. According to Forbes, the rate for a 30-year mortgage has already reached 5.49% in mid-May. At this rate, we will likely see a 6% mortgage rate by year’s end.
4. Inventory Is Starting to Catch Up
Now that the economy is much more stable, construction businesses are starting to get back into the swing of things and are slowly catching up with the housing demand. The good thing about this is when there’s more inventory, prices could go lower if the demand doesn’t pick up.
As of Q2 2022, inventory is still way below normal but for markets like Austin TX, Nashville TN, and several others, housing inventory is slowly but steadily increasing.
Related: Real Estate Market 2022: Which Predictions Came True & Which Ones Didn’t?
Mashvisor’s Real Estate Forecast Next 5 Years USA
The pandemic might have caused some setbacks for the real estate industry as a whole. With the unpredictability of COVID-19 at the pandemic’s onset, industry professionals and insiders didn’t know how bad it could affect the entire global market.
However, as we went deeper into the pandemic—thanks to people’s ingenuity and diligence—we somehow managed to navigate it and make the necessary changes to keep the industry alive. In fact, what was very surprising throughout the pandemic was how well the real estate industry performed.
The demand for housing, especially those outside urban-dwelling centers, increased significantly as more city folks wanted more affordable and spacious housing. With most companies embracing remote work arrangements and granting their employees the flexibility needed to cope with the times, home sales soared and reached unexpected highs. As remote workers and in-migrants kept the demand up, housing prices inevitably went up as well.
But one of the best things to happen, especially for homebuyers and investors, was that mortgage rates were also at record lows during this time. And while it has incrementally increased over the past year, we’re still enjoying reasonably low rates to date. This makes affordable housing within reach for a lot of Americans, especially the Millennials.
Five years ago, no one would have ever thought the real estate market would be where it is today. But now, considering the global health climate we’re in, industry experts and analysts are making bolder predictions for the next five years. Let’s take a closer look at some of the most common predictions for the real estate market in the next five years:
Forecast #1: Mortgage Rates Will Go Beyond 6%
As we have already mentioned in the previous section, industry experts are anticipating that mortgage rates are most likely to hit 6% by the end of the year. This means that within the next five years, the rates will inevitably go beyond that number.
Because of this, a lot of people are afraid of a housing market crash. But will the housing market crash on account of rising interest rates? The answer is no.
While interest rates may continue to go up, interest from prospective investors and buyers is also increasing. In fact, most housing experts predict that the real estate market will continue to stay strong for the following reasons:
- There is an increasing demand for housing coming from the Millennials, with Gen Z right on their tails.
- Inventory, while growing, will have a hard time keeping up with the increasing demand.
- Because mortgage companies and lenders now have stricter standards, it is very unlikely that borrowers will default on their mortgages.
Related: Mortgage Rates: The Real Estate Investor’s Complete Guide
Forecast #2: Home Prices Will Continue to Increase But at a Much Slower Pace
Even as interest rates continue to soar, experts say that they are unlikely to affect house prices that favor home buyers. They even believe that steep rate hikes aren’t enough to decrease prices on real estate properties, whether they’re for residential use or intended as income properties.
The lack of inventory and increasing demand will most likely continue in 2022 and beyond. If we base it purely on the law of supply and demand, housing prices will continue to go up. Sure, the soaring interest rates might slow down the housing market but property prices will continue to go up.
Another reason for continuous housing price increases is the number of in-migrants moving out of states with expensive housing into ones that have more affordable prices. Because of the corporate pandemic-induced changes which now allow employees to work remotely, most city dwellers are finding their way out into the suburbs where the cost of living is more affordable. This trend is most likely to keep up given the new normal we’ve all adapted to.
Forecast #3: Exurbs and Suburbs Will Be a Lot Pricier
As more companies embrace flexible working arrangements, more and more people are moving out of cities into suburbs and exurbs for different reasons. Some are looking for more affordable lifestyles. Others want bigger living spaces which the city cannot provide. Still, others are taking this time to explore their options given that a lot of companies now allow people to work remotely.
With Millennials growing older and starting families of their own, most of them are looking for properties that can meet the needs of a growing family. The business-minded Millennials are also taking this time to find investment properties that will give them an additional income stream.
Millennial demand has pushed and dictated housing prices, especially in areas with the most number of children. Most of them are considering suburbs and exurbs to raise their families in. As the people of this generation get into their 30s, they will continue to fuel the growth of home prices in neighborhoods conducive to raising their children.
Forecast #4: Remote Work Will Be the Norm to Reduce Costs and Expenses
To say that the COVID-19 pandemic has been a game-changer for almost all industries is a huge understatement. Businesses that failed to adapt and pivot to the global health crisis were forced to shut down their doors. Those who were quick to make the necessary changes and innovate new ways to do business managed to stay afloat and keep their business going.
For most companies, it was a matter of adaptation or shut down. While remote work has been around for several years now, it was only until COVID-19 broke out that everyone gave it a serious thought.
Now that we’re already two years into the pandemic, remote work has become the norm for most of us. This lifestyle will continue to prevail in the coming years as based on studies, those who have experienced remote work have fully embraced it for the flexibility and practicality it affords them.
Global Workplace Analytics found that around 25% to 30% of the country’s workforce worked from home in 2021. Upwork, an online employment agency, claims that one in four Americans (around 26%) are working remotely in 2022. While that number is expected to drop to 22% by 2025, we’re still talking about roughly 36 million Americans remotely working and living wherever they please.
The main thing that makes remote work attractive is its practicality. Millions of Americans realized how much savings they made getting work done at home. Not only were they able to save money, but they also saved precious time. On average, Americans save around 40 minutes per day when they don’t have to go out to get to work. Because of these, 23% of Americans are willing to take a 10% pay cut just to work from home on a permanent basis.
Forecast #5: Investors Will Flock to Real Estate
Investors are most likely to divert more money into real estate over the next few years. If there’s one thing that the pandemic proved, it is that real estate is a good hedge against inflation. Because real estate is not correlated with the general market movement, it is not easily affected by inflation, even if March 2022 already saw an inflation rate of 8.5% with no end in sight.
Wise investors know well enough to bet on inflation and buy assets that tend to appreciate. Why will investors flock to real estate? Real estate values continue to increase in double digits. Interest rates are still at historical lows. Demand for housing will continue to grow.
At least for the next five years, real estate investing is one of the smartest decisions investors will make.
To learn more about how we will help you make faster and smarter real estate investment decisions:
How Should Investors Respond to the Real Estate Forecast for the Next 5 Years?
It is to a real estate investor’s advantage if he or she knows the current market conditions and forecasts. This allows them to anticipate which direction the market is most likely to take in the coming months (or years). With the pandemic still looming over us, there are still plenty of possibilities for the real estate market. But the fact remains that real estate is a sound investment option that could reap good returns even in trying times.
We’re not downplaying economic hardships, which is why we recommend that investors perform extensive due diligence to ensure investment success. With experts’ real estate forecast next 5 years, investors have a better understanding of how the market could potentially behave. Knowing industry trends and forecasts should be part of an investor’s due diligence. Having the right information plays a huge role in an investment venture’s success. So is having accurate data and potential income projections.
When it comes to data gathering and crunching the numbers, a real estate website like Mashvisor is a big help for real estate investors. The site is trusted by thousands of investors all across the US, most of whom have found the best investment properties that line up with their goals. The website has provided them with highly accurate market data and allowed them to perform complex real estate market analysis in a fraction of the time.
Mashvisor’s users and subscribers have access to a huge database covering almost all markets in the US as well as investment tools that allow them to make accurate projections for their return on investment.
To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.