Home prices have continued to rise, disappointing potential buyers. Despite high mortgage rates, these increases have persisted. Accordingly, it should be no surprise that market analysts continuously discuss whether or not a housing crash could happen soon.

In the U.S., the real estate market showed a slowdown in 2022 and hinted a price correction. However, prices still spiked, reaching a record high in 2024. According to the National Association of Realtors (NAR), May’s median home price hit $419,300, and average home prices rose 5.8% across the country.

Although the market and buyers and sellers anticipate a post-pandemic correction, prices have remained relatively stagnant.

If you’re one of the many people wondering where the housing market is heading, this article will discuss a number of forecasts to consider.

Forecast for 2024

Experts continue to predict some improvement in the housing market. While inflation continues to linger and interest rates remain high, there are expectations that more accommodative monetary policy could be around the corner, helping home buyers out. That said, the Federal Reserve’s reluctance to lower the federal funds rate, influenced by inflation, have kept mortgage rates high, affecting borrowers.

A single rate cut could ease mortgage rates, potentially boosting housing market conditions. Despite hopes for a drop from 6.8% to 6%, experts like Jiayi Xu from Realtor.com recently suggested that substantial improvements were unlikely soon, with rates around 7%. Meanwhile, U.S. home prices continued to rise, up 6.5% annually in March, according to the S&P CoreLogic Case-Shiller Home Price Index, setting new March highs. On a positive note, resale inventory started to appear in some areas this spring, expected to ease the pace of price growth.

Keith Gumbinger from HSH.com highlighted key conditions for a housing recovery: a significant increase in home inventories to ease price pressures, potentially leveling or reducing peak levels. However, mortgage rates, hovering around 7%, remain a prolonged concern despite a slight dip to 6.86% in late June, per Freddie Mac.

Gumbinger cautioned against rapid declines in mortgage rates, which could spur demand and negate inventory gains, causing prices to rise again. He advocated for gradual rate reductions to steadily improve buyer opportunities over time. Returning to a “normal” range of upper 4% to lower 5% rates could aid the housing market in returning to 2014 to 2019 levels, though Gumbinger foresaw a delay in achieving these rates.

5-Year Forecast

Homebuyers’ hopes for ultra-low mortgage rates have dimmed as the Federal Reserve’s inflation-fighting measures pushed rates into the mid-to-high single digits, a stark rise from recent historic lows. Experts foresee a gradual upward trend in rates over the next two years, mirroring projections from Freddie Mac. This outlook indicates that rates are likely to remain in the mid-to-high single digits through 2026.

Analysts continue to draw on FHFA data as of April 2024, with projected potential rate stabilization or slight decreases by 2028, depending on economic conditions. Persistent inflation may necessitate ongoing rate hikes, while economic slowdowns could prompt the Federal Reserve to lower rates.

Higher mortgage rates reduced buyer loan qualifications for the same property price, cooling housing markets, especially in already strained affordability areas, per NAR data as of April 2024.

What Experts Say

The recent hot housing market continues to be fueled by intense buyer competition, which has kept home prices near record highs. As of March 2024, median prices stood at $393,500 for existing homes and $430,700 for new construction. With the Federal Reserve tightening rates, experts foresee slower price growth over the next five years, aiming for a stable market rather than a decline.

The U.S. real estate market seemed poised for a major correction. Veteran strategist Chris Vermeulen from The Technical Traders observed concerning trends, including persistently high borrowing costs and plateauing home construction. These patterns echoed those before the 2008 housing crisis. Despite recent stabilization due to increased investment, Vermeulen warned the market remained at risk if mortgage rates stayed high.

Vermeulen cautioned that the current market pullback might be deceptive, anticipating a significant downturn. He noted, “People don’t realize real estate is primed and ready for another major leg down.” Despite recent buying, Vermeulen expects a collapse. Experts have warned of a property price correction, especially in the commercial sector.

Office values have fallen 35% since the COVID-19 pandemic, and Fitch Ratings predicted further declines due to high remote work levels and rising refinancing costs.

Correction May Happen

In 2024, the likelihood of a housing market correction remained uncertain and complex, with varied expert opinions. While many agreed that a correction, involving slower price growth or slight declines, was more plausible than a crash, views differed.

Key factors included a resilient economy and labor market despite inflation worries, stricter lending standards reducing default risks compared to 2008 and ongoing low housing inventory supporting stable price conditions.

Forecasting the exact nature and scale of a correction remains difficult. While a major crash seems improbable, experts expect slower growth or slight price drops in 2024. The outcome will depend on economic factors, mortgage rates and regional variations. Specific markets may behave differently, so consulting a local real estate expert is crucial for tailored advice if you’re planning to buy or sell a home this year.

Bottom Line

The housing market isn’t likely heading for a crash in the very near term. Chief economist Mark Fleming from First American Financial Corporation emphasized the imbalance between buyers and housing supply, a fundamental economic principle. Other experts have noted that rising mortgage rates skewed the market, creating pent-up demand that could surge if rates drop.

While some markets like Austin saw minor price dips, National Association of Realtors’ Lawrence Yun predicted overall stable prices nationally, citing robust demand and limited inventory.

Between 2005 and 2007, the U.S. housing market appeared overheated before crashing, leading to a global economic downturn akin to the Great Depression. Today, amid rising mortgage rates and recession fears (with a 33% likelihood per Bankrate’s survey), questions continue to arise about a potential housing crash. Housing economists, however, agree it’s unlikely to crash as severely as in the Great Recession.

Homeowners now have stronger financial positions, with robust credit, ample equity and low fixed-rate mortgages. Builders, mindful of past recessions, have restrained construction, resulting in a persistent shortage of homes. Lawrence Yun from NAR acknowledges potential local price declines but considers a widespread 30% drop highly improbable due to limited supply.

On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.