If you're looking to buy a home in the next few years, you'll want to take a close look at what's expected to happen with the real estate market. While the housing market will continue to be strong, the Freddie Mac forecast model predicts that prices in the United States will drop by 0.2% in the next three years. The good news is that mortgage rates are expected to remain steady, and hold near 7% over the next five years.
Freddie Mac forecast model predicts U.S. home prices falling 0.2% in 2023
If you're considering buying a home, you may have heard that housing prices will begin to decline in 2023. In fact, a Freddie Mac forecast model predicts that prices will fall by 0.2% in 2023.
The prediction is based on a combination of lower demand and a larger supply of homes. Many economists believe that the U.S. is poised to enter a recession in late 2023 or early 2024. However, there are some forecasts that see a milder downturn in prices.
Homebuyers are facing mortgage rates that have doubled in the past year. This has caused the affordability of many homes to get worse. That's not enough to push the housing market into a recession, but it can make consumers feel like they're in the middle of a downturn.
In addition, a shortage of homes on the market is weighing on buyers. Economists also expect that the job market will slow down. These factors are causing a rebalancing of the power in the housing market.
Millennials fuel home price growth in first time home buyer neighborhoods
The millennial generation is the largest cohort of homeowners in the country, and with a few billion dollars in disposable income, they're going to start buying homes in droves. A massive wave of first time homebuyers is forecasted for the next three years.
Although the millennial generation is the biggest homebuyer group, it isn't the only one. Generation X and Baby Boomers also form households at a record pace. However, the millennials are the most tech savvy of the group, making use of gadgets like smartphone apps to find properties and schedule showings.
Millennials also face the usual challenges of saving for a down payment, securing a mortgage, and balancing the family budget. In addition, the cost of homes is on the rise.
Fortunately, fewer buyers means less competition, which is a good thing for the housing market as a whole. But inflated housing prices can be intimidating.
Mortgage rates expected to hold close to 7% in 2024
As the Federal Reserve continues its efforts to fight inflation, interest rates are rising. The Fed's benchmark federal funds rate is expected to increase to 2% in the next two years. However, mortgage rates are expected to drop to just over 5% by the end of 2023.
Mortgage rates are influenced by a number of factors, including inflation. This has made it difficult to accurately predict the direction of the market. But if you look at the broader economic picture, you'll see that the economy has been slowing in recent months.
Recent trends show that the risk of a recession is increasing. Business investment will likely decline, and the overall economy will likely contract. These conditions will cause a reduction in the housing market. Eventually, this will lead to higher unemployment and a recession.
Although the Fed has slowed its pace of rate hikes, experts expect them to continue at least until mid-2020. In the meantime, however, the 10-year Treasury note yield has remained largely stable.