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Over the pandemic period, housing prices increased rapidly to unimaginable figures. However, in the past 2 months, the hot housing markets are beginning to cool as housing prices begin to slowly decelerate. Real estate experts have different opinions on how fast and how low housing prices will fall, while investors and buyers are trying to get a glimpse of the direction in which the market will go.
Buying a property is a major financial decision that requires planning. Trying to interpret the future in order to at least get some guidance on how to invest our finances makes sense. Even though we can’t be entirely sure how the market will look in the next few years, it makes sense to try and get it right. Regardless of what is to come, planning and looking far into the future are always good moves. So, what does the market have in store for us in the next five years? Let’s find out.
What the current market looks like
The housing demand is slowly going down, but the supply rates are still low. The low demand rates are due to the rising mortgage rates that are driving buyers out of the market. The mortgage rates have increased to 7%, which is high compared to the last two decades. According to info from Ofirio, the housing market experienced a major spike in some cities, with house prices increasing up to over 20% last year.
Despite the effort of the Federal Reserve to lower house prices by increasing the mortgage rates, buyers and sellers are still concerned about how high the mortgage rates have increased compared to the last years. According to Christopher Thornberg, the founding partner at Beacon Economics, the current market is stubborn, and it will take more than a 5% increase in interest rates to cool it down. With that, we leave it in the hands of the Federal Reserve to decide how high and how fast the rates will go up to balance the housing market without causing it to clash.
The predictions for the next 5 years
What is the outlook for the housing market in 2023 and so on? The forecast of the market for the next five years can be challenging because various outcomes might happen. However, some analysts have tried to interpret where the market is heading. According to Lawrence Yun, a chief economist for NAR, the United States is likely to face a 15% to 25% price increase within the next five years.
He explains that for the next year, there will be a drop in prices, which will soon start balancing out into 2024 and then be followed by consistent growth for the next few years, that is, 2025, 2026, and so on. It is clear that the decrease in house prices will last for only a short time. Despite experts having different figures, they all report the same pattern.
Lucas Cook, a real estate researcher, explains that he expects a 1% growth in the next year and a 7% growth by the year 2026 if the mortgage rates decrease in the next 12 months. Another expert, Goldman Sachs, a researcher in the industry of real estate, says that housing prices are likely to fall up to 10% and bottom-up by the end of 2023, where they will level out and remain stable until mid-2024. This shows that there is still time before a turnaround occurs.
What can buyers do to protect themselves?
Here are some tips to help buyers protect themselves from high mortgages.
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Save more money
The housing market has begun slowing down, but mortgage rates are becoming more and more expensive. To save yourself from getting into a risky situation, you need to save more money in order to make a larger deposit.
This will prevent you from getting into a situation where your mortgage is worth more than your house. Depositing a large down payment will result in a smaller mortgage.
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Try to increase your earnings
With the state of the economy, you have to learn to survive. This is a good time to gather the courage and ask your boss for a raise. If that seems impossible, find other avenues you can use to make an extra income.
According to a recent study, around 60% of people changed jobs last year, and by doing so, they now earn more than what they were earning in their previous jobs. You must be ready to discover new opportunities.
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Research the market
As much as the housing markets seem to be generalized, they are different depending on location. The prices and requirements for these houses vary greatly from city to city and state to state.
As you plan to buy a house, it is recommended that you focus on the local markets and not the state markets. Research the market conditions in the local area where you wish to buy a home. Try to find good housing that is more affordable and will be worth your every buck.