Summary: Kathy Fettke, co-founder of RealWealth, has shared her housing market predictions since 2005, and these predictions have been correct every single year. Learn more about Kathy’s story here.
As a buy and hold real estate investor, market researcher and real estate syndicator, she believes it’s essential to understand demographic trends and migration patterns. Additionally, understanding where jobs are headed, and populations are growing is essential in deciding when to buy and when to sell.
In this guide, Kathy will share over 28 housing market predictions for the next five years – 2023, 2024, 2025, 2026 and 2027. She also answers one of the biggest questions investors ask every year: Will the housing market crash this year? And if not this year, when?
Note: This article is currently being updated to include the Kathy’s latest predictions for 2023 and to add predictions for 2027. Check back for a complete update at the end of January 2023.
I’ve been obsessed with understanding market cycles and housing market predictions for decades, after watching my father get blind-sighted several times during his real estate journey. In fact, one of his challenges became my opportunity in 1996. Real estate values in California slowly declined after the 1990 oil price shock, debt accumulation from the 80’s, and growing consumer pessimism from high interest rates.
Dad was invested in an apartment in Marin County that lost value due to poor management during a brief recession, and it was subsequently sold at a loss. However, he had taken many tax deductions from that property over the years, which would be recaptured, unless he did a 1031 exchange. That meant he had to find a replacement property in just a few weeks time.
I jumped in to help him out, mainly to reduce his stress, as he had been hoping to retire. Paying the unexpected taxes would have made that impossible.
Rich and I found a 6-bedroom home that met the exchange amount, so we offered to turn it into a 4-plex, while living in one of the units. We would manage the property and pay for all expenses, in exchange for inheriting it someday (in which case the property basis would step up to market value, and the past taxes would be eliminated.)
Little did we know we had timed the housing market perfectly. It was the beginning of a run-up in real estate values in California. That property went up in value about $100,000 per year for 10 years straight!
In 2005, I was hosting a radio show in San Francisco, the Real Wealth Show, and had Robert Kiyosaki, the author of Rich Dad, Poor Dad as a guest. He explained that a credit melt-down was looming and a housing crash coming. How did he know, when so many others didn’t?
Simple. It was no secret that adjustable rate mortgages would be resetting in 2006, 2007 and 2008, and that many borrowers would not be able to handle the increased payments. He was certain that would lead to many foreclosures in California, as prices had gone up far beyond the ability of the average person to afford.
He told me he had sold all his California property and had 1031 exchanged into Dallas, Texas. He explained that many companies were moving to Dallas for the tax credits and affordability, and that was driving strong population growth. Housing supply could not keep up with demand and was still very affordable. In fact, it was 27% undervalued at the time.
Rich and I followed his advice and bought nine properties in the Dallas area. We shared our story on the Real Wealth Show, and suddenly our phones were ringing off the hook with people looking to do the same. We shared our agent and property manager’s information, and helped hundreds of people sell their high-priced, low cash flow California property and 1031 exchange them for low-priced, high cash flow property in Dallas. Those properties in Dallas have since increased in value 4-fold, while cash flowing along the way.
This is why I’m obsessed with understanding market cycles and being able to predict housing market trends.
Since 2003, I’ve been helping new and experienced investors purchase cash-flowing real estate nationwide, in real estate markets poised for explosive growth. I was one of the few who predicted the mortgage meltdown and subsequent Great Recession and encouraged thousands of people to sell their properties in the expensive “bubble” markets and 1031 exchange them for high cash flow properties in affordable, emerging markets.
From 2004-2008, I was a mortgage broker. It was obvious that something was very, very wrong. I remember turning in a loan application to a popular bank (that no longer exists today) and having the banker call to say the client didn’t qualify because they didn’t make enough money. I replied that I would let them know. The banker said, “Don’t worry. We changed his income so he qualifies now!”
I came home and told Rich, and asked him if he thought that sounded OK. He said, “No! That sounds like fraud!”
“Fudging” the numbers had become commonplace for borrowers, bankers and mortgage brokers. How could they not see that this would not end well? Mortgage brokers could give just about anybody a loan of nearly any size, with no money down, and no verification of income or assets. If I knew this kind of easy, careless lending was creating a bubble that would pop when those loans were due, how did executive in banking boardrooms not see it? In places like Las Vegas, the average home price nearly doubled in just one year due to this kind of easy lending!
When predicting the future, you have to be willing to see what others don’t.
Dallas, Texas had the opposite problem. Prices were undervalued compared to the average income. Wages, were growing much faster than home prices due to massive job growth in the DFW metro area.
I remember getting a call from a woman who had hoped to retire through real estate. She bought three older homes in the Stockton area, in a high crime area, and turned them into rental properties. The vacancies and repairs were eating up any income she received from rents. She told me she was done with real estate investing, because it didn’t work.
I encouraged her to sell these older, run-down properties in Stockton, California and 1031 exchange them, tax-deferred, for brand new homes in Dallas that cost $140,000 each. She trusted me and put the Stockton homes on the market. They sold for $420,000 each, even though they only rented for $1200 each! She was able to buy nine brand new rental homes in Dallas, Texas that each rented for $1,200! She quintuple her cash flow with that one financial move and was finally able to quit her day job.
Eighteen months later, when the real estate market crashed, the Stockton properties she sold for $420,000 were worth $75,000 each at best. That was, of course, one of the worst-hit markets in the Great Recession, because it was also one of the biggest bubbles prior to the housing crash. On the other hand, the Dallas properties never lost value, and in fact, have since quadrupled in value. She lived very comfortably off the cash flow over the past decade, as rents continued to rise in Dallas, Texas.
Many real estate agents say the three most important things in real estate are location, location, and location. While location of one’s property is very important when it comes to buying or selling real estate, I believe market timing may be even more important. That’s why I’ve offered my real estate market predictions every January, sharing what I believe will happen with the real estate market based on my many interviews with economists, 40-year veteran real estate investors and boots-on-the-street property teams and property managers nationwide.
So far, since 2005, I’ve been right.
In January of 2020, I didn’t predict that a virus would knock down the economy, but I did tell my audience I expected a black swan event would hit soon that would shake things up. I’ll explain why I knew that later in this article.
In 2021, I didn’t predict that home values and rents would increase in the double digits, but I did predict that there would be greater demand for housing than there was supply, which would drive prices up. Other “experts” were predicting a massive housing crash due to millions of distressed borrowers during the pandemic. How could we have such differing opinions. I’ll explain later in this article.
This year, in 2022, I decided to dive in even deeper and provide housing market predictions for the next 5 years. While it’s really hard to predict what will happen next month, as a buy and hold real estate investor and real estate developer, we have to be able to see trends that may continue to drive real estate values and rents – beyond just one year.
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14 Nationwide Housing Market Predictions for 2022
My top 14 housing market predictions for 2022 are:
- The unemployment rate will stay low
- Job openings will continue to be over 10 million
- Inflation will remain higher than the Federal Reserve’s target of 2%
- The Federal Reserve will try to fight inflation by raising rates at least 3 times
- Mortgage rates will be over 6%
- Home prices will continue to climb, albeit at a slower pace
- There will be a slight uptick in mortgage defaults
- More people will choose adjustable rate mortgages
- Lending requirements will become tighter
- More people will choose to live remotely to lower their housing costs
- The suburbs and exurbs will become more expensive
- The number of renters and rental prices will rise
- Due to the November elections, there will be no real changes in taxes
- Investors will flock to real estate stocks
2022 Housing Prediction #1: Unemployment Rates Will Stay Low
My first housing market prediction for 2022 is that unemployment rates will stay low. In 2020 when we were hit by the Coronavirus pandemic, businesses were shut down and people were required to stay at home. Millions of people lost their jobs and unemployment rates soared. However, the Federal Reserve acted quickly in providing stimulus checks, business loans that didn’t have to be repaid, and generous unemployment benefits.
As a result, the savings rate skyrocketed in 2021. As the economy started to slowly and cautiously re-open, most metros saw at least 50% of those jobs return. The national unemployment rate hit 6.9% as of November of 2020. Today, most metros have recovered all their lost jobs, and in fact, there are now 11 million job openings!
The real problem we have today is not unemployment. It’s that we don’t have enough workers for all the available jobs! This will create inflation, as employers are forced to pay more to attract labor.
2022 Housing Prediction #2: Job Openings will remain over 10 million
Nobody knows for sure if we’ll see a resurgence of Coronavirus cases, but as of the first quarter of 2022, most mask mandates have been removed. Businesses have reopened. Countries have re-opened their borders to travelers, and life is slowing starting to come back to normal.
In fact, pent-up demand for goods, services and travel has created more orders than many businesses can handle. Thousands of factories were shut down during the pandemic, and they have been slow to re-open. Now they struggle to get employees and materials in order to keep up with demand. This has caused more material shortages worldwide.
For this reason, I predict we’ll continue to see low unemployment rates, along with continued wage growth.
2022 Housing Prediction #3: Inflation will remain higher than the Fed’s 2% target
The Russian invasion of Ukraine, a horrible crime against humanity, resulted in further shortages. Ukraine is considered “the bread basket of the world” yet their wheat exports are down to a trickle.
Countries who oppose Russia’s actions have imposed sanctions that hurt Russia financially, but also hurt those who rely on their exports. Russia has been a huge exporter of oil and gas, so energy prices have soared worldwide. Europe has been especially hard hit.
While the U.S. has oil reserves, it would take time to get drilling back up and running quickly. Many investors were hit hard when oil prices tanked in 2015, and are not eager to return to such a volatile investment. While the U.S. does not import much more than 4% of Russian oil, the crunch is affecting consumers at the pump.
Shelter costs represent a large percentage of how the U.S. government measures inflation. Rents have increased dramatically this past year, double any previous year, and over 15% nationwide. Some markets like Miami and Phoenix were up over 20%. Typically, rent increases are closer to 2 or 3%.
There were headlines in 2020 and 2021 predicting millions of foreclosures due to the millions of people being in forbearance. However, those headlines were misleading. While people were indeed late on their mortgage payments, they were legally allowed to stop paying if they were financially affected by the pandemic. The lenders agreed to add those lost payments to the end of the loan.
There were approximately four-million homeowners in forbearance in 2021, but that number has dropped to around one-million in 2022. The amount of inventory available on the housing market is so low today that even if these borrowers default on their loans, they would likely put their property on the market for sale rather than go through a foreclosure.
Zillow reported that U.S. housing inventory declined to 729,000 listings in February of 2022 – that’s 25% less than February of 2021, and 48% fewer listings than in February of 2020. This is the 5th consecutive month of declining inventory.
At the same time, the largest cohort of Millennials (ages 29-33) are forming households at record rates. Housing market experts are expecting there to be a massive wave of first time home buyers for the next three years, with limited supply to meet demand. That’s why rents and home prices are expected to continue to rise in 2022, fueling more inflation.
Additionally, the Fed increased the money supply by nearly 50% over the past two years in an effort to stimulate the economy after the pandemic flatlined it. With trillions of dollars created in such a short period of time, there is far more money circulating, which increases demand, and tends to drive prices up, creating more inflation.
2022 Housing Prediction #4: The Federal Reserve will try to fight inflation by raising rates at least three times
The Federal Reserve, the U.S. central banking system, fights inflation by raising overnight lending rates. They have stated that they plan to be aggressive in raising rates as much as seven-times this year and potentially by 200 basis points.
When money becomes more expensive with higher interest rates, the velocity of money slows down. When money becomes inexpensive, with lower rates, more people borrow and spend, which stimulates the economy.
The Fed lowered rates to near zero levels at the beginning of the pandemic, to stimulate the economy when the pandemic hit. The Fed also bought mortgage backed securities and bonds to keep rates low.
While Fed action may have been necessary in March of 2020, some say that the Fed did not stop quantitative easing soon enough in 2021, and instead stoked bubbles in real estate and stocks. The Fed stated that inflation was transitory in 2021, but in 2022 the Fed Board changed its tune.
It is very important to pay attention to how quickly the Fed raises rates in 2022. If they raise rates too quickly, it could shock the economy and usher in a recession. We are already seeing GDP slow down.
Higher mortgage rates will price many want-to-be home buyers out of the housing market. However, having fewer buyers is actually good for the housing market. Right now, many properties still have multiple offers over asking price, and inventory continues to decrease. Having fewer buyers is a good thing for prospective homeowners, because competition will decrease. On the flip side, many won’t be able to afford to buy a home. This will increase the demand for rental properties, which will drive rents up and contribute to inflation.
2022 Housing Prediction #5: Mortgage rates will be over 6%
As of April 13th, 2022, the 30-year fixed-rate mortgage hit 5% for the first time since 2011. The 10-year ARM (adjustable rate mortgage) was at 4.3%. As a result, there are more people looking for lower cost, adjustable rate loans.
While mortgage rates are not tied to Federal Reserve rate hikes, they are affected by the Fed’s quantitative easing.
The Fed has been buying $120 billion in Treasurys and mortgage backed securities to keep rates low and stimulate the economy. In so doing, they doubled their balance sheet from $4.4T to $8.8T.
Now the Fed is planning to reduce that balance sheet and reduce its bond buying to $95B per month.
With the Fed no longer acting as a major bond buyer, will another big buyer take the Fed’s place? If not, interest rates will increase to attract investors. In other words, mortgage rates are determined by investors. When investors seek safety, they buy bonds and MBS’s (mortgage backed securities.) When investors believe they can get better returns elsewhere, they put their money in stocks and real estate. Considering the increase in home prices that is expected to continue, investors see that they can make much more money in inflationary assets.
That means that in 2022, bond investors are signaling that they see more inflation in the future, and are investing in inflationary assets like stocks and real estate.
If the market for Treasurys and MBS is low, yields increase to attract buyers. High inflation will keep rates high. Don’t expect to see rates come down until inflation gets under control.
If the Fed succeeds in combating inflation, rates will decrease. However, it does not appear that will happen in 2022 – unless the Fed really puts on the brakes and raises interest rates at a faster pace than expected. Keep your eye on the Fed!
2022 Housing Prediction #6: Home prices will continue to climb
Rising interest rates will slow the housing market, and that is a good thing. Real estate was becoming terribly unhealthy in 2021, with short supply and increased demand.
Some markets like Boise, Idaho saw home prices increase by over 40%! This is due, in part, to all the Californians who were able to live remotely and move out of high-priced cities to more affordable areas. This is unsustainable and terrible for the locals who get priced out.
Another reason for rapidly rising home prices, is the historically low interest rates of 2021, combined with a large Millennial population forming households who desire to have more space after being forced to stay inside small apartments with small children for a year. (Yikes!)
Millions of people were able to work from home during the pandemic, and many employers learned new systems to make that possible. They also learned that they could lower costs by cutting back on office space.
Remote work has become the “new normal” since 2020. While many businesses are asking employees to come back to the office, many have reduced the number of hours required in the office.
They also discovered there are fewer illnesses when workers stay home and work from their bedroom when they are sick.
As a result, many employees with high-paying tech jobs have been given a new lease on life – to live wherever they want! They can now take their highly-paid city job and live in the suburbs or even in the country. Some people even learned they can live in their dream retirement location, while still working.
That’s why places like Florida have experienced a massive influx of people from New Jersey and New York. Home prices and rents continue to climb to accommodate people who can afford the elevated prices, because it’s much cheaper than where they were living before.
I don’t see this changing in 2022 or 2023.
2022 Housing Prediction #7 There will be an uptick in mortgage defaults
While mortgages in some stage of delinquency decreased to 4.65% in the 4th quarter of 2021, the number of properties filing for foreclosure was up 129% from last year. Foreclosure filings in February were up to 25,833, according to ATTOM Data Solutions.
Foreclosure activity remained low over the last two years, due to pandemic-related foreclosure moratoriums. Last year, the Biden administration extended the moratorium on foreclosures to July 31, 2021.
That’s why it’s no real surprise that foreclosure filings increased by over 11% from January to February of 2022. Double-digit increases will likely continue for the next six months, as the backlog of non-paying borrowers makes their way through the system.
These borrowers were protected for over two years, but now that banks can take action, expect a return-to-normal foreclosure activity. However, that “normal” is much lower than historic levels due to low supply of housing and strong buyer demand.
Some areas will be harder hit than others. Depending on state laws, it can take from a few months to a few years for a bank to repossess a property from a non-paying borrower.
The state with the highest foreclosure rate is New Jersey, with 1 in every 2,510 homes. Illinois took the second spot, with 2,126 properties in foreclosure. Ohio claimed third place, with 2,801 foreclosures. The states that rounded out the top ten of highest foreclosure rates in 2022 are South Carolina, Nevada, Maryland, Delaware, Indiana, Florida and California.
States with the lowest foreclosure rates are North and South Dakota, Alaska, West Virginia, Vermont, Oregon, Montana, Kansas, Kentucky, Washington, and Tennessee.
Home prices have shot up nationwide, and as mortgage rates increase, affordability will be out of whack in certain markets. This will slow down sales, and could hurt borrowers who need to sell their home, but can’t.
Most distressed borrowers have been able to put their home on the market and sell quickly, instead of letting their property go into foreclosure. However, some “stagnant” markets will feel the affect of higher rates, since they already have a smaller pool of buyers. We are already seeing an increase in delinquencies, primarily with those who have FHA and VA loans. FHA loans accepted lower credit scores and lower down payments on their loans.
Conventional loans were given to borrowers with the highest FICO scores seen in decades. Given the low interest rates they locked (many in the 3% range), high home equity, and strong wage growth, it’s unlikely we’ll see a high foreclosure rate nationwide in 2022.
2022 Housing Prediction #8 More people will choose adjustable rate mortgages
Home prices have shot up nationwide, but the pool of first time buyers is still high due to the massive Millennial generation. The largest group of Millennials are between the ages of 29-33, and are now forming households at an aggressive rate.
They are well educated and very independent. These potential Millennial buyers will be comfortable locking in a fixed-rate mortgage instead of dealing with higher rents, even if the rate is only fixed for seven to ten years, and adjustable after that.
As of April 16th of 2022, the 30-year fixed-rate mortgage hit 5.094%. That’s the highest it’s been in over a decade. However, the 7-year ARM is at 4.3%. The difference can mean the ability to buy a home or not.
Many young people may not be planning to stay in the home for more than seven years anyway. Given that adjustable rate mortgages are much cheaper than 30-year fixed-rate mortgages, we can expect more people to choose ARM’s over spending more of their housing costs on rising rents.
However, it’s important for borrowers to understand that their rate could increase once the fixed-rate period expires. For example, if a borrower gets a 5/1 ARM, the payment is fixed for the first five years and adjusts each year after that. It’s important to understand the terms, what the increase is tied to, and how much the payment can adjust.
There is certainly more risk with shorter term loans, as no one knows where the market will be in two, five or seven years. We don’t know what a home’s price will be in the future, or how high interest rates will go. It’s impossible to know if it will be easy or difficult to sell the home in the near future.
But based on charts from then last 60 years, home prices have continued to rise over the long term. That’s why long term debt tends to be safer, if you can afford it.
Given the shortage of homes on the market versus the strong demand, many borrowers are betting that prices will be higher in the future. Plus, they will have paid down a portion of the loan in that time frame, increasing equity.
2022 Housing Prediction #9 Lending requirements will tighten
According to Cision PR Newswire, Cerebro Capital reports that commercial lenders eased up on their lending standards in the fourth quarter of 2021. That made it easier for businesses to get loans.
However, those easy lending standards may not continue in 2022. Twenty-seven percent of non-bank lenders expect lending standards to tighten over the next six to twelve months. This is in part, due to the Federal Reserve’s raising rates in 2022 in attempt to slow down the booming economy to curb inflation.
According to Reuters, the U.S. Federal Reserve announced that its 2022 bank stress tests will include testing for a severe decline in commercial real estate prices and turmoil in corporate bond markets.
According to the Mortgage Bankers Association (MBA), the decline in the Mortgage Credit Availability Index (MCAI) indicates that lending standards are tightening, and that mortgage credit availability decreased in January of 2022.
The simple way to predict a tightening in credit standards is understanding that the Federal Reserve is tapering. When money is being pulled out of the market, there is less to lend. Therefore, banks will choose to lend to more qualified borrowers – especially at a time when the central bank is aggressively attempting to slow down the economy.
Higher rates and stricter lending will eliminate more borrowers from qualifying for a home, and will likely increase the pool of renters. This will drive up rents, and of course, inflation numbers – leaving the Fed in quite a predicament as they attempt to lower inflation.
2022 Housing Prediction #10 More people will choose to work remotely to lower their costs
2020 was a year that will be remembered for many reasons. One of the outstanding memories will be that 2020 was the banner year for remote working.
When most of the world was required to stay at home during the pandemic, companies had to learn how to prepare their entire workforce to work from home. Thanks to technological innovations, it worked for a lot of companies in ways they never imagined before 2020.
Suddenly companies could hire people from anywhere, dramatically increasing their pool of potential employees. They also learned they could dramatically cut down on office space. And in many cases, they could pay their employees less by allowing them to live in more affordable places.
Global Workplace Analytics believes that 25-30% of the workforce worked remotely by 2021. Online employment agency, Upwork, estimates that one-in-four Americans, over 26% of the workforce, will be working remotely! They estimate that will drop a bit to 22% by 2025, which is still 36-million-Americans living wherever they want.
Some researchers say 16% of companies are fully remote, globally.
A survey by Owl Labs shows that remote employees save an average of 40-minutes per day when they don’t have to commute. Also, video conferencing is up 50% because of the Covid-19 pandemic.
After COVID-19, 92% of people surveyed want to work from home at least one day per week and 80% want to work at least three days from home per week, because they are saving close to $500 per month being at home ($6,000 per year). Plus, 81% of those surveyed believe their employer will continue to support remote work after COVID-19.
What’s interesting is that 23% of people surveyed would take a 10% pay cut to work from home permanently. Another 59% of respondents said they would be more likely to choose an employer who offered remote work compared to one who didn’t. This is important for employers to understand at a time when there are 11-million job openings.
2022 Housing Prediction #11 The suburbs and exurbs will become more expensive
According to Zillow, home values are growing the fastest in areas that are “family friendly.” This is a reflection on the impact Millennial home buyers are having on the housing market.
The zip codes with the largest share of children saw an average of 21% growth from October of 2020 to October of 2021. The zip codes with the smallest number of children grew at 17%.
“As Millennials go, so goes the housing market, and we are seeing now, as Millennials age, that they are looking for homes that fit the needs of growing families,” said Zillow economist Nicole Bachaud. “Millennial demand has helped push up home prices in areas with the most children. Competition for homes in these family-friendly areas should intensify in the coming years as more Millennials reach the key age of 32, adding to the affordability squeeze.”
The Zillow press release says that the snowball of Millennials reaching peak age for buying a home has grown over the past nine years, and that snowball is about to turn into an avalanche.
Approximately 200,000 more Millennials will turn 32 in 2022 than in 2021 and even more will do so in 2023. This demographic will continue to fuel home price growth in first time home buyer neighborhoods over the next two years.
This effect is strongest in counties that encompass the cities of Norfolk, Virginia; Washington, D.C.; Portland, Oregon; Austin, Texas; Seattle, Washington; Jacksonville, Florida, Los Angeles, CA; Raleigh, North Carolina; Salt Lake City, Utah; and Tampa, Florida.
2022 Housing Prediction #12 The number of renters and rental prices will rise
Rents soared across the nation in 2021, with some cities averaging rent hikes over 40% (like Austin, Phoenix and Miami).
According to Redfin, rents jumped more than 14% nationwide in December of 2021.
More and more Millennials are getting married and having children, and are in need of housing. Yes, the supply shortages continue to worsen, which is driving up both home and rent prices. Now, with mortgage rates on the rise, fewer people can afford a home, which is forcing them to continue renting.
Soaring inflation has wiped out any wage gains Americans received. According to the Guardian, renter incomes grew by 0.5% between 2001 to 2018, while rental prices increased by 13%. That leaves half of all renters (20-million households) burdened by the cost of rent with more than one-third of their income going toward rent and utility bills.
Unfortunately, the cost to build has soared as well, making it difficult for developers to bring on more affordable housing. One solution would be to subsidize builders and ease up on developer fees and requirements, but that is up to local planning commissioners who may not want more growth.
For example, RealWealth syndicated an apartment building in Mountain View, California where affordable housing is desperately needed. We planned to increase the units from 246 to 800, with 30% of those units being affordable. However, local backlash stalled the project, forcing us to sell.
As long as the material and labor shortages continue, along with energy costs skyrocketing, and planning offices being shutdown or slowed down by Covid-19, expect the housing shortage to continue. This will drive up both rents and home prices, even with higher interest rates.
2022 Housing Prediction #13 Biden’s Proposed Tax Increases happen due to November elections
The Biden Administration is proposing a minimum tax of 20% on households worth more than $100 million, according to fact sheets by the White House budget office.
It applies to the top 0.01% of households with half of the expected revenue coming from billionaires. The idea is that a minimum tax would prevent the wealthiest Americans from paying lower rates than middle class families.
As the pandemic faded and the economy expanded at a 5.7% pace in 2021, economic growth reduced the deficit from $3.1 trillion in 2020 to $2.8 trillion last year and a projected $1.4 trillion this year. Now the Biden administration wants to go after those who benefited from all that growth.
According to CBS News, one White House official said the proposal hopes Democrats can deliver on what Republicans promised before without much success: faster growth and falling deficits.
There has also been talk about changing 1031 rules. However, with an election coming up in November, and Biden’s approval rating hitting new lows of 38%, it’s unlikely we’ll see any real changes to the tax law this year.
2022 Housing Prediction #14: Investors will flock to real estate and stocks
My final housing market prediction for 2022 is that investors will flock to real estate and stocks. In March of 2022, the Consumer Price Index (CPI) report put inflation at 8.5%, the fastest pace in 40 years, with no end in sight.
While the Federal Reserve is raising interest rates in 2022 to slow down the economy and curb inflation, investors are still betting on inflationary assets.
The winners in an inflationary economy are borrowers, as debt can be paid back in cheaper dollars. Real estate has long been a favored hedge against inflation. Stocks that rise during periods inflation, including those related to food, energy and housing, are also winners.
The losers in an inflationary economy are the lenders, those who hold cash, and anyone making less than inflation on their investments.
Investors buy bonds and Mortgage Backed Securities when looking for safety. However, with the 10-Year Treasury in the 2.5% range, and inflation in the 8.5% range (in March of 2022) investors would lose money buying bonds.
Instead, they are betting on inflation, and buying assets that are expected to increase in value. With real estate values increasing by the double digits, and interest rates still historically low, returns are expected to be higher. That’s why we are seeing an increase in institutional buyers into real estate.
2022 is the beginning of changing tides. The Federal Reserve trying to reign in inflation, but it won’t be easy given the headwinds. Real estate remains one of the best places to get ahead of rising prices.
11 More Housing Market Predictions for 2022, 2023, 2024, 2025 and 2026
Looking for a real estate forecast for the next 5 years? You’re in luck. This is one of the only articles on the web that includes real estate market predictions beyond 2022. And we go even further than that, outlining our predictions through the year 2026!
Here are my top 11 predictions for the housing market for 2022, 2023, 2024, 2025 and 2026:
- Mortgage interest rates will rise through 2022 and 2023
- Home prices will continue to rise in the markets that are attractive to millennials
- People won’t want to sell their homes because so many are locked into low interest rates from the past
- Housing inventory will become even tighter across the country
- There will be fewer home sales and fewer pending sales
- iBuyers will be on the rise as they seek to buy rentals
- Listing agents will be in demand, while buyer’s agents may have to lower fees
- There will be fewer real estate agents by 2025
- The real estate agents who remain will offer more services
- There will be a wider access to data than ever before
- More people will consider home sharing options
It is well known by now that millennials will drive the housing market for years to come. They are the most educated generation in history, they are larger than the baby boomer generation, and the largest group of them are ages 29-33.
This group is just now entering the average 1st time home buying age, as they form families. This all comes when housing inventory levels are at extremely unhealthy lows.
It will be difficult for builders to provide enough supply to meet demand, given the labor and material shortages. Plus, many cities are concerned about providing utilities to a growing population, and are trying to curb development.
It will be nearly impossible for builders to provide affordable housing as costs are just too high.
This mean more and more millennials will move to areas that are more affordable, since many can work from anywhere. That’s why markets that are attractive to millennials like Austin, Nashville, and Boise will continue to grow.
As more locals get priced out of their markets, they will also move to more affordable places like Ohio or Tennessee. Or they will move into apartments.
Demand for housing, whether to rent or own, will grow nationwide. I expect home prices to continue to rise in millennial cities, and rents to continue to rise nationwide. Tech cities will continue to boom as well.
What Factors Cause a Housing Market to Crash?
Before I answer the big yearly question: Will the housing market crash in 2022, and if not will it crash in the next 5 years… it’s important to understand what causes real estate markets to crash in the first place.
Firstly, it’s important to note that housing markets don’t just crash out of the blue. Over time, a variety of factors will start putting pressure on a market, eventually causing it to crash.
Factors that cause a housing market to bubble are often:
- Low interest rates
- Rapid job growth, which increases demand
- Easy lending or inflation
When a market is experiencing a combination of these factors, a housing bubble may have formed and then could easily pop if one of the factors is removed.
The housing market crash happens when:
- Interest rates rise too quickly
- Jobs disappear too quickly along with demand
- Loans suddenly become harder to get
- Or an economic slow down occurs that causes massive deflation
What is a Housing Bubble?
A housing bubble forms when home prices increase quickly and rise beyond affordability. It can start growing when there’s a lot of demand, coupled with the ability to buy. It can also form when there aren’t enough houses for sale on the market to meet demand, which creates competition and drives prices up.
Housing bubbles basically mean that prices grow and grow, becoming less and less affordable to the average buyer. At some point, the bubble gets so big, it becomes out of reach for most people. Lack of affordability causes sales to slow as inventory grows. Prices begin to drop, and the air is slowly or very quickly let out of the bubble.
This is good for buyers, and not so good for sellers. That’s why timing is very important, because you don’t want to be a buyer in a strong seller’s market or a seller in a strong buyer’s market.
You may also like: How To Determine If It’s a Buyer’s or Seller’s Market?
Some people confuse bubbles with natural growth. For example, prices rose fairly quickly in Dallas, Texas in the last decade but it wasn’t a bubble. People from the area who weren’t used to rising home prices feared that a bubble was forming and that it would eventually pop. It didn’t and probably won’t.
Why? Because even though prices rose quickly, so did salaries. The average person in the area could still afford the average home or rent. Dallas was building one of the fastest-growing, most diversified economies in the world. Home prices were just trying to keep up with salaries. In 2014, when oil prices tanked, the Dallas market was barely affected. That’s because Texas has become a no tax income state, offering huge tax incentives to businesses that moved there. As a result, the area was no longer dependent on one industry. The rising home prices were just a “new normal” for the area.
On the flip side, North Dakota also saw home prices soar because the oil industry was booming at that same time. Unfortunately, when the oil crisis hit in 2014, thousands of jobs were lost and demand for housing nearly immediately disappeared. Prior to that, builders had been actively trying to keep up with demand. When demand disappeared, the market was flooded with new homes and no workers to buy or rent them. A housing bubble formed quickly and popped nearly as quickly because the area was dependent on one fairly volatile industry.
What Happens When a Housing Bubble Bursts?
When a housing bubble grows and pressure builds, the housing market is likely to crash when several factors come into play. For example, when interest rates rise, the economy slows. Jobs can be lost and demand decreases. This creates oversupply, thus a buyer’s market, and subsequently, lower prices.
When that happens, the real estate market could crash or simply slow down a bit. The question is, how do you know how bad it will be and how quickly it will recover? It really depends on how sustainable the growth was prior to the slowdown and how severe the factors are that caused the slowdown.
Excessive risk-taking and unsafe practices by lenders, buyers, borrowers, builders, and investors can push housing prices way too high. The higher the bubble, the bigger the crash. Supply will continue to rise in order to meet the initial uptick in demand. However, because home prices can get so inflated, demand can actually decrease due to affordability issues, while supply continues to increase.
With too many high priced homes on the market and not enough able buyers, prices will suddenly drop. And…pop goes the bubble. There are big bubbles in certain markets today, which we’ll discuss in a bit. But first, let’s take a look at the most recent and most significant housing market crash in modern times, which occurred in 2008.
Finally, the BIG Yearly Question: Will the Housing Market Crash in 2022?
The short answer is no, we DO NOT expect there to be a housing market crash this year and other real estate experts we’ve spoken with have expressed the same opinion. Lots of demand and not a lot of inventory should persist through 2022 and beyond. New construction just can’t be completed fast enough to meet demand in the affordable price range.
When forbearance for mortgages runs out completely, it is more likely that lenders will offer a loan modification, moving the owed payments to the end of the loan cycle. Banks don’t want a housing crash because it hurts them the most. They will work with the borrowers who were not at fault for losing their jobs and businesses.
There really is no such thing as a national housing market, even though we talk about it often. It’s like saying we have national weather, when in fact, it can be snowing in one area and sunny in another.
Housing markets vary greatly depending on many factors. Some areas around the country might see home values fall, stay flat, or boom. We think the areas that will boom will be in parts of the Midwest and the Southeast, due to high affordability and job opportunities.
There are several markets in the U.S where home prices are at their highest level ever. That’s because low interest rates have made these areas more affordable, even if prices are higher. This does not mean they are in a bubble. It just means that prices are higher than they have been, and maybe salaries are as well. It may also be that there is simply not enough inventory to meet demand, so those who can afford to pay more will.
Tighter lending standards compared to the 2000s will help minimize the risk of a real estate market to become over-leveraged and crash, as we saw in 2008. The loans that have been made over the past decade are solid, from borrowers with high credit scores, savings, and low debt.
Will the Housing Market Crash in the Next 5 Years?
As mentioned above, we don’t expect the housing market to crash in 2022. We can, however, expect major changes over the next 5 years as technology evolves.
Robots will take more jobs than Covid, so educating people on new technologies will be of high priority. Reno is a great example of this. When Tesla moved its battery facility to the Reno area, there were simply not enough local residents who knew how to work in that profession. As a result, Tesla helped to fund new classes at the local colleges and universities to train more people on their new technology. Job growth is phenomenal in the area, along with the demand for housing.
History has taught us lessons about recessions, depressions, stock market crashes, housing market crashes and even pandemics. We can learn from the past to prepare for the future. One thing we know for sure is that the economy always fluctuates.
Based on the simple economics of supply and demand, I DO NOT foresee a national housing market crash in the next five years.
There are housing markets around the country that will get hit harder than others–particularly bigger cities. A dense population, expensive housing and a high cost of living is already driving people away from big cities and into smaller metros or suburbs that offer more affordability and a better quality of life. The key for real estate investors is to determine where people are moving and which markets are best for investing.
We hope that this deep dive into our housing market predictions for 2022 through 2026 gives you a solid understanding of what you can expect in the coming years. All in all, the future looks bright when it comes to real estate investing. The real estate market is not going to crash anytime soon and in many areas around the country there are still strong opportunities to buy affordable rental property that will cash flow and have the potential for equity growth too… if you understand when and where to buy. If you’re looking for help identifying markets and properties, we can help. Become a member of RealWealth. It’s free and signing up takes less than 5 minutes.