2025-2030 Five-Year Housing Market Predictions

                                          By Patrick S. Duffy

The next five years will likely usher in more sales activity, but expect flatter price increases.

Over the next five years, expect some major societal shifts, including changing immigration policy and expanding tariffs, a falling domestic birth rate and the rise of single-person households. Coupled with the expansion of AI into more parts of our daily lives and the rising costs of property ownership, including damages, these trends will impact the housing industry in the coming years.

Still, for the housing market, the most critical factor is mortgage rates: If they remain relatively high compared with the period from early 2009 through mid-2022, transactions will remain limited to changes in jobs, finances or household composition. However, if mortgage rates manage to fall more quickly, pent-up demand from the last few years could be unleashed, with volumes returning closer to historic norms. How this plays out will determine just how different the list of the hottest housing markets in 2030 may look versus in 2025.

Existing Home Sales Will Rise but Still Be Constrained
When compared with pre-pandemic norms, home sales are expected to remain muted as long as mortgage rates remain well over 6%. According to its most recent projections, the Federal Reserve forecasts inflation won’t fall to around 2.0% until 2027 or later. Fed Chair Jerome Powell has also indicated he’s in no hurry to lower rates until the potentially inflationary impacts from tariffs have been fully realized. This will mean flat but gradually declining short-term interest rates throughout 2025.

Two other wild cards include the potential impact of tariffs and the deportation of millions of immigrants lacking permanent legal status, both of which could be destabilizing to the economy – especially in agriculture and construction – and lead to a rebound in inflation.

More consumers have become accustomed to higher borrowing rates and may have sufficient incomes and down payments to jump into the housing market. Still, the lock-in effect resulting from homeowners sitting on mortgages well under 6% is keeping inventory levels under historical norms. As of the fourth quarter of 2024, Realtor.com estimated that 82% of homeowners with mortgages had interest rates below 6%. That share was down from nearly 93% in early 2023 and could approach 75% by the end of 2025. As this lock-in effect continues to wane, look for more sellers to list their homes for a variety of reasons including changes in employment, the number of family members or even to pay off debt.

For those who do choose to wait before trying their luck in the housing market, if their time horizon is within the next few years, risking down payments with volatile investments such as stocks, bonds and cryptocurrencies is not recommended.

“As a general rule of thumb, I would not look to other investment opportunities if the plan is to still purchase a home in less than five years,” said Charles Hamilton, a certified financial planner and wealth manager with Northwestern Mutual in Los Angeles. “Most of my clients facing this question are opting for high-yield savings accounts or short- to medium-term CDs.” Hamilton adds that all investments carry some level of risk, including the loss of principal funding.

Homebuilders Will Continue to Meet Pent-Up Demand
Whenever the inventory of existing homes for sale remains relatively low, more buyers will look at newly built homes. With newly built homes making up approximately 30% of overall single-family detached housing inventory in recent months – more than double its typical market share – buyers are increasingly considering the advantages of new construction. Housing starts jumped from under 1.3 million in 2019 to over 1.5 million in 2022 before settling back to an annualized rate of under 1.3 million in May.

Still, one reason builders are starting fewer homes is due to rising supply and fewer sales because of elevated mortgage rates. According to the Census Bureau, sales of newly built single-family homes in May were down 13.7% from April and 6.3% from May 2024. Based on monthly sales rates in May, supply for new single-family homes rose to 9.8 months – more than double the level of existing single-family supply of 4.4 months.

One-fifth of these unsold new homes were finished while another half were under construction. Buyers should look for larger builders interested in selling off their inventory to offer generous incentives, including mortgage rate buy-downs, closing cost contributions and upgrade allowances.

A June survey by the National Association of Home Builders showed 37% of builders cutting prices by an average of 5% – the highest level since monthly tracking of this figure started in 2022 – and up from 29% in April. Meanwhile, 62% of builders reported offering sales incentives, up one percentage point from May.

With mortgage rates trending lower in recent weeks, these discounts and incentives will not last indefinitely.

“While it may be true that there are currently more months of national supply for newly built homes versus the resale market, that won’t always be the case,” said Phil Kerr, CEO of City Ventures, a California homebuilder operating in both urban and suburban areas. “When you also factor in the lower cost of maintenance for our homes featuring newer technology and including the latest solar power panels, the total cost of ownership may actually be lower than owning an existing home.”

Housing Shortage Will Last Through the End of the 2020s
With the estimated pent-up demand for housing ranging up to 4.5 million homes, even if the nation’s builders are willing to produce more supply, it still takes time to find suitable land, skilled labor and materials. The National Association of Home Builders expects this pent-up demand to be supplied between 2025 and 2030, but after 2030, changing demographics will eventually result in lower demand for new housing.

National Housing Market Predictions for 2025-2030
The following is a summary for year-end 2025 and 2026, along with some predictions for the housing market through 2030. Although an outright recession is not currently being predicted, GDP growth is expected to decline sharply from the robust rates of 2.9% in 2023 and 2.8% in 2024 to just 1.4% in 2025. While the Fed forecasts a rebound by 2026 and 2027, growth is expected to remain muted at 1.6% to 1.8%.