Bonnie Wu: Forecast of US real estate trends in the next five years

 

In the next five years, the U.S. real estate market will face the impact of interest rate fluctuations, supply and demand imbalances, population migration and technological changes. Although there is uncertainty, by analyzing the current economy and trends, we can predict the main development directions of US real estate from 2024-2029.

Here is Bonnie Wu’s analysis of the key trends.

1. Housing supply still exceeds demand, and housing price growth slows down but remains high

The U.S. housing market has been facing a supply shortage over the past few years, especially for entry-level homes. This trend is likely to continue over the next five years, mainly due to the following reasons:

  • Construction costs are high: Prices of building materials (such as wood and steel) and labor costs are still high, and developers are more inclined to build high-end homes rather than affordable housing.

  • Mortgage rates affect demand: Even if the Fed cuts interest rates after 2025, they will still be above their historic lows and failure to stimulate home buying demand.

It is expected that the annual growth rate of US house prices may be between 3% and 5% in the next five years.

2. Interest rates gradually falling back, and housing demand slowly recovers

The Federal Reserve's monetary policy will continue to affect the housing market:

  • Current 30-year mortgage rates are likely to remain in the 6%-7% range, which dampening buyer demand.

  • Rate cuts are possible after 2026: If inflation stabilizes around 2%, the Federal Reserve may cut interest rates to push mortgage rates reduced to 5%-6% to stimulate home buying.

3. Population mobility drives regional market differentiation

Migration trends in the United States will dominate housing price trends in different regions:

  • Florida, Texas, North Carolina, etc. will continue to attract immigrants and support housing prices due to their low taxes, warm climate and job growth.

  • There is Strong demand in the suburbs of large cities, however, the high-end residential market in core cities remains stable.

  • Cities with high costs of living, such as San Francisco and New York, maybe because of the outflow of residents leads to a slowdown in house price growth or even a slight decline.

4. The rental market remains hot, and rental growth is stabilized

High house prices and high interest rates make it more difficult to buy a home, and more people will choose to rent, driving demand in the rental market.

  • The annual rent increase may be between 4% and 6% from 2024 to 2026.

  • Institutional investors may increase their investment in rental apartments, especially affordable rental housing.

5. Further integration of technology and real estate

PropTech will change the industry landscape:

  • VR house viewing and AI home buying consultants will improve transaction efficiency.

  • Energy-saving equipment and smart security systems will increase the value of real estate.

  • Transactions may use smart contracts to reduce costs.

6. Climate change affects insurance and housing prices

  • Flooding and hurricane risks in coastal areas such as Florida and California may lead to higher premiums, prompting some buyers to move to inland cities.

  • Energy-saving houses, solar roofs, etc. will become market selling points.

7. Policy factors: housing subsidies and tax changes

  • If the federal or state governments introduce more subsidy policies, it may stimulate demand.

  • Some high-tax states may face an outflow of residents, affecting housing prices.

Conclusion:

In the next five years, the U.S. real estate market will present the following characteristics:

  • House prices rose modestly (3%-5% annual growth), but with significant differences between different regions.

  • Interest rates will first increase and then decrease, and home purchase demand may pick up after 2026.

  • The rental market remains strong, with rent increases exceeding inflation.

  • Technology, climate and policy factors will dominate the market landscape.


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