Can the Housing Market Cycle of the Past 5 Years Help Predict the Future Market?

Real estate follows fairly predictable cycles. However, the pandemic of 2020 unseated the fairly steady housing market patterns established in recent years. This instability can make it challenging to predict when to enter the market, whether you’re buying a home for yourself or increasing your rental or investment portfolio.

The housing market of the last five years saw wild swings, with mortgage interest rates reaching record highs and lows during that period. Unprecedented competition for housing saw cash buyers jousting for sales with offers that often exceeded the selling price.

Fortunately, you can expect a return to more normal patterns as inflation and higher mortgage rates level off and buyer competition for inventory decreases.

2018 Housing Market Trends

Average National Sales Price: $240,812

Mortgage interest rates started to rise from previous all-time lows below 4%. Lower interest rates stimulated home sales in 2012 after the housing market bubble burst in 2008. They gradually increased after the 2016 presidential election, peaking at the end of 2018 at 4.87%.

The housing market experienced strong, stable growth that year. California alone felt an increase in its housing market value of over $1 trillion.

New York was the most valuable player in the housing market, with a total market value of more than $3 trillion dollars, about 9.1% of the country’s total housing wealth.  Housing wealth nudged to record highs. One of the most expensive markets, Washington D.C., exceeded the combined value of homes in 40 states with a value of $892 billion.

The most significant increases were realized in areas with a more affordable housing market. People migrated from high-priced housing markets, such as Washington D.C., New York, Los Angeles, Denver, and San Francisco, to more affordable places like Phoenix, Portland, and Atlanta.

The Steady Cycle of 2019

Average National Sales Price:  $249,607

The year 2019 was the last year during the past five years that could really be considered “normal” in the housing market. Economists predict that 2023 will hearken to similar conditions as interest rates and home sales continue to settle into a more normal pattern.

During 2019, homeowners tended to stay in their homes for an average of 9.75 years; today, that average is increased to more than 10 years. Like 2019, the pattern is toward an increasing number of households rather than sharing homes with friends or family.

That pattern in 2019 led to a “seller’s” housing market, where buyers were competing against one another to purchase a home. Buyers took advantage of declining interest which dipped from nearly 5% toward the end of 2018 back to 3.6% toward the end of 2019.

This dip increased the average selling price and reduced the number of homes the average buyer could afford. For example, the average Arizona household brought home $59,246 in 2018, which was sufficient to qualify for 14.3% of the housing inventory in the Phoenix metro area that year. In 2019, the average income was $62,055 but despite the increase, that figure only gave them access to qualify for a little more than 10.5% of the housing market inventory in the metro area.

2020 in Flux

Average National Sales Price:  $270,354

Where the early months of 2020 followed the normal expectations of the housing market, March 2020 with its “shelter in place” mandates across much of the country threw it into a spin. Mortgage interest rates slid below 3% for the first time in history by July.

Home sales dropped in February and March. Instead of the usual spring and early summer increase in home sales, housing market sales dipped by more than 20% than the year before. The housing market increased by year’s end, thanks to plummeting mortgage interest rates, and sales rose more than 20% over the previous year.

Although the median income across the U.S. increased by 6.9% from 2018 to 2019, it decreased by 2.9% from 2019 to 2020. The median U.S. income was only $68,010, meaning that hopeful homebuyers in booming markets such as Phoenix could access around 16 to 20% of homes on the market.

2021 Begins Recovery

Average National Sales Price:  $249,607

The year 2021 saw the largest increase in inflation — 4.7% — since 1990, but the median income was not statistically different than the year before. Full-time workers increased by 11.1 million.

Mortgage interest floated around 3% for the entire year, finishing with a national average of 2.96%.

The housing market became increasingly competitive in 2021, especially in boomtowns, where most homes had multiple offers above the listing price. In January 2018, roughly 20% of homes for sale received multiple offers. By June 2021, 56.2% of homes experienced buyer competition. Although the trend cooled down by year’s end, it stayed above 42%, leaving sellers expecting to choose from more than one offer.

2022 Sees Rising Inflationary Repercussions

Average National Sales Price:  $357,544

Inflation increased more rapidly in 2022. Over the first seven months of 2022, inflation rose 5.4%. Between July 2021 and July 2022, inflation increased 8.5%. Migration hotspots suffered the highest inflation for goods and services, with Phoenix experiencing 13.1% year over year in the third quarter. Atlanta, Tampa, and Miami also had double-digit inflation in the third quarter, compared to the US average of 8.3% for that quarter.

Competition for available housing market inventory was fierce with more than 59% of homes for sale during the spring of the year receiving multiple offers. The competitive trend dropped steeply during the summer, and by November 2022, was back to pre-pandemic levels of less than 30%.

Migration continued toward less expensive states with municipalities in Florida taking five of the top ten spots of most sought-after communities. In California, people exited expensive markets like Los Angeles and San Francisco.

Rent prices continued rising steadily, with the median asking price rising 7.4% across the nation. Pandemic boomtowns with formerly inexpensive rent saw the biggest increases: Raleigh, North Carolina saw a rent increase by a whopping 21.8% and Oklahoma City by 15.8%.  Other metro areas with steep rent rises between 10 and 15% included Memphis, Pittsburgh, Salt Lake City, Nashville, and Cleveland.

Increasing rent prices motivated renters to buy their own homes, but increasing home values and mortgage interest rates above 7% precluded many. In Maricopa County, Arizona, where Phoenix lies, the mortgage that cost $1,265 a year before now costs $1,930 for less home than the year before.

Rent levels in the Phoenix metro area only rose 1.7% compared to the national 7.4%, making this pandemic boomtown a desirable “wait and see” location for borrowers hoping for a decrease in both interest rates and home prices.

2023 Was a Wild Ride of Ups and Downs

Average National Sales Price:  $402,600

The National Association of REALTORS® reported continued growth in home prices during the second quarter of 2023. While national median prices fell 2.4% year-over-year to $402,600, they rose 8.5% compared to the previous quarter. Additionally, 128 metro areas saw year-over-year price increases during this period, underscoring regional variations in the housing market.

Monthly mortgage payments on single-family homes climbed to $2,051 this quarter, up from $1,837 a year ago. The qualifying median family income increased to $98,429, rising from $89,486 in the previous quarter and $88,200 a year earlier. The effective 30-year fixed mortgage rate also rose, reaching 6.57% in the second quarter compared to 5.32% a year ago. Median family incomes increased to $91,270 during the same period, compared to $87,181 one year earlier.

Understanding mortgage rates and qualifying income requirements is essential for potential homeowners as they evaluate which metro areas align with their financial capabilities. [source]

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2024 Sees Varying Costs Across the Country

Average National Sales Price:  $357,469

The average home value in United States is $357,469, up 2.5% over the past year. As of the third quarter of 2024, the median home sales price in the United States stood out at $420,400, reflecting a modest 1.4% increase from the previous quarter's median of $414,500. Housing costs vary widely across the country, with Hawaii remaining the most expensive state for homebuyers, boasting a median home value of $986,352, according to the Zillow Home Value Index. In contrast, West Virginia is the most affordable state, with a median home value of $167,341, highlighting the stark regional disparities in the U.S. housing market.

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Looking forward in 2025

So, what does 2025 hold for the housing market? As we approach 2025, the U.S. housing market is expected to experience several notable trends:

Home Prices and Sales Activity

• Modest Appreciation: Home prices are projected to rise moderately. Zillow forecasts a 2.6% increase in home values, while Realtor.com anticipates a 3.7% rise, aligning with growth patterns observed since 2012.
• NowBam
• Increased Sales Volume: Existing home sales are expected to see a slight uptick. Zillow predicts approximately 4.3 million sales, up from 4.1 million in 2023 and a projected 4 million in 2024.
• Zillow

Mortgage Rates

• Gradual Decline with Volatility: Mortgage rates are anticipated to decrease gradually but remain above 6%, with potential fluctuations. This trend may provide temporary opportunities for buyers to secure more favorable rates. HousingWire

Inventory Levels

• Improved Availability: The housing inventory is expected to continue its recovery, with a forecasted increase of 11.7% compared to 2024. This growth suggests that buyers may encounter a wider selection of homes, easing some of the competitive pressures seen in recent years. Realtor

Affordability and Buyer Behavior

• Affordability Challenges Persist: Despite potential declines in mortgage rates, affordability remains a concern due to elevated home prices and economic factors. Buyers are likely to exercise caution, carefully evaluating their financial situations before making purchasing decisions.
• Real Estate
• Shift Towards Renting: With the cost of homeownership remaining high, a significant number of individuals may opt to rent. The rental market is expected to become more favorable, with median asking rents projected to remain flat, improving affordability for renters.
• Redfin

Regional Variations

• Diverse Market Dynamics: Regional disparities will continue to influence the housing market. Certain areas may experience stronger price growth and sales activity, while others could see stagnation or declines, depending on local economic conditions and housing supply. Realtor

In summary, the 2025 housing market is poised for modest growth in home prices and sales, with gradual improvements in inventory levels. However, affordability challenges and regional variations will play significant roles in shaping market dynamics. Prospective buyers and sellers should stay informed about these trends and consider local market conditions when making real estate decisions.

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