Housing Market Predictions for the Next 5 Years: Real Estate Outlook for the US, UK & Europe

What will happen to house prices in 2024 and beyond? It’s a question that always divides opinion – and this year doesn’t look to be any different. Interest rates, inflation numbers, upcoming elections, stock market movements, and the availability of homes all affect property valuations.

Economists, real estate gurus and investors can interpret the various financial and sales data in a multitude of ways. It’s why there are often conflicting forecasts being published.

So, will house prices go down, or can homeowners expect the value of their bricks and mortar to rise substantially over the next five years?

In our housing market predictions focus, we look at what the various projections are for the US, UK and Europe.

Table of Contents Table of Contents

1. Key Takeaways
2. Key Factors to Consider Exploring the Housing Market Future
3. Housing Market Predictions 2024, 2025 & Beyond
4. The Bottom Line
5. FAQs
6. References

Show Full Guide

Table of Contents

1. Key Takeaways
2. Key Factors to Consider Exploring the Housing Market Future
3. Housing Market Predictions 2024, 2025 & Beyond
Show Full Guide
4. The Bottom Line
5. FAQs
6. References

Key Factors to Consider Exploring the Housing Market Future

Anyone who wants to buy their own home or is interested in real estate investing will want to know the likely direction of property prices.

As well as keeping up to date with the latest housing market news, prospective buyers need to pay attention to interest rate levels and inflation.

Of course, making housing market predictions for the next 5 years isn’t easy because there are so many of these variables to consider. One of the most important factors is interest rate movements, which will influence the cost of mortgages.

US Interest Rates

Interest rates have been high over the last couple of years as countries across the world have tried to combat rising inflation.

In the US, for example, ​​the Federal Reserve kept the rate unchanged at 5.25%-5.5% during its May meeting. This was for the sixth consecutive time.

According to Trading Economics, ongoing inflationary pressures and a tight labor market indicate a stall in progress toward bringing inflation back down to its 2% target this year.

“Policymakers acknowledged that while inflation has moderated over the past year, it remains elevated, and there has been a notable lack of further progress towards achieving the central bank’s goal in recent months,” it stated.

UK Interest Rates

In the UK, meanwhile, the expectation is that there could be an interest rate cut during the summer months.

The Bank of England’s Monetary Policy Committee voted by a majority of 7-2 at its May meeting to maintain the rate at 5.25%.

It stated: “Key indicators of inflation persistence are moderating broadly as expected, although they remain elevated.”

But how about the longer term? What are the projected interest rates in 5 years? Well, Vanguard believes the higher interest rate environment will last years, not months.

“By the end of 2025, we expect policy rates to be between 2.25% and 3.75% across major developed markets,” it stated. “We’re not returning to a zero-interest rate world anytime soon, and this will have profound implications for the global economy and financial markets.”

Housing Market Predictions 2024, 2025 & Beyond

US Property Outlook

Let’s start with the US housing market.

Strong Competition for US Homes

There’s no immediate end in sight to rising house prices, according to Thomas Ryan, property economist at Capital Economics. He wrote:

“Rising buyer demand mixed with a very small pool of second-hand homes for sale will ensure strong competition for homes and a 5% rise in house prices this year.”

It’s a similar economic outlook for the rental market.

“We expect softening demand and strong completions to drive vacancy higher and hold rents around current levels over the next year or so,” he added.

Luxury Homes Rising in Value

The US luxury real estate market, which is defined as the top 10% of home values, is in good shape, according to a report from JPMorgan Wealth Management.

“A post-pandemic surge in the total wealth of the top income households, along with greater use of private aviation and the rise of remote work, has spurred dramatic gains in luxury housing prices,” it stated.

The study noted how luxury home prices increased 65% versus a 40% gain for the non-luxury market from the fourth quarter of 2019 to the same period in 2023.

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There was also “considerable geographic variation,” reflecting factors such as the differences in tax rates and regulations.

“For example, median prices jumped 56% in Miami, Florida, while New York City prices gained 28%,” it explained.

US Five-Year Real Estate Forecast

What is the most accurate real estate forecast for the next 5 years? Home prices will continue to rise, albeit at a slower pace, according to Norada Real Estate Investments.

Its study also predicted that the supply of homes will increase.

“The lack of available homes for sale has been a major driver of rising home prices in recent years,” it pointed out. “However, as more homes are built and come onto the market, we can expect to see some relief from the supply shortage.”

However, Norada believes the housing market “will remain competitive” over the next five years for a number of reasons.

“Even with rising interest rates and a growing supply of homes, the housing market is still expected to remain competitive in the next few years,” it stated. “This is due to a number of factors, including strong job growth, population growth, and a limited supply of land.”

European Property Outlook

House prices were down 1.1% in the euro area but up by 0.3% in the European Union during the fourth quarter of 2023, according to eurostat.

Among the Member States for which data are available, eight showed an annual decrease in house prices in this period, while 18 enjoyed an increase.

However, the real estate housing market in one country is likely to have enjoyed a different experience than that in another.

“The largest falls were registered in Luxembourg (-14.4 %), Germany (-7.1 %), and Finland (-4.4%), while the highest increases were recorded in Poland (+13.0 %), Bulgaria (+10.1 %) and Croatia (+9.5 %),” it stated.

More broadly, European real estate prices proved more resilient in 2023 than had been expected, according to an analysis earlier this year from S&P Global Ratings.

“We have revised upward our housing price forecasts amid improved price resilience across the European market,” it stated.

The ongoing high cost of building materials, strong labor market, and construction backlog are some of the key issues behind this resilience.

“The extent of our upward revisions varies greatly from country to country, and is most pronounced for the UK, Ireland, and countries in southwest Europe such as Spain and Portugal,” it explained. “Only Germany and Sweden depart from the general trend toward greater housing price resiliency in 2023.”

Looking ahead, house prices in the eurozone should recover slightly this year, according to an analysis by ING. It stated:

“While the structural supply deficit of housing is likely to be exacerbated by high material costs and the lack of skilled workers in the construction sector, a moderate increase in demand will probably put slight upward pressure on prices.”

UK Property Outlook

Next, we take a look at the outlook for the UK housing market.

Slowdown in UK House Price Growth

According to some reports, it hasn’t been great in the UK, with home prices dropping 0.4% month-on-month during April, which means the annual rate of change slowed to 0.6%, according to the latest Nationwide House Price Index.

In an update, Robert Gardner, Nationwide’s chief economist, revealed that property values were around 4% below the all-time highs recorded in the summer of 2022.

“The slowdown likely reflects ongoing affordability pressures, with longer-term interest rates rising in recent months, reversing the steep fall seen around the turn of the year,” he wrote.

In addition, research carried out by Censuswide on behalf of Nationwide found nearly half (49%) of prospective first-time buyers have delayed their plans over the past year.

Gardner added:

“The most commonly cited reason for delaying their purchase is that house prices are too high (53%), but it is also notable that 41% said that higher mortgage costs were preventing them from buying.”

Prices Could Rise Due to Rate Cuts

However, average UK house prices actually rose 0.2% in April, following a fall of 0.9% in March, according to the Halifax House Price Index.

It revealed that a typical UK home now costs £288,949 ($355,233), which is modestly higher than the £288,781 level it was in the previous month.

However, Amanda Bryden, head of mortgages at Halifax, believes interest rate cuts could lead to falling fixed-rate mortgage deals this year. She said:

“Combined with the resilience displayed by the housing market over recent months, we now expect property prices to rise modestly over the course of 2024.”

UK Five-Year Real Estate Forecast

But what about the real estate forecast for the next 5 years? Property experts at Savills expect homeowner and first-time buyer activity to increase. They predicted:

“By 2026, transactions will return to c.1.16 million per year, and will stay at that level until 2028, with only mortgage buy-to-let activity remaining muted.”

Long-Term UK Housing Market Forecast Summary

Source: Savills Research

Will There Be a Housing Crash?

Fred Harrison, an author and economic commentator, accurately predicted a housing market crash in both the early 1990s and in 2008.

He believes property cycles last for 18 years, including six or more years of modest growth, followed by a one to two-year market dip before another boom period.

In a recent interview, he reaffirmed the predictions he made three years ago that the next UK house price crash could come in 2026.

The Bottom Line

So, what conclusions do we draw from our analysis of housing market predictions? Will we see a housing bubble forming and then a subsequent housing market correction?

Most countries will experience nominal home price growth in 2024, albeit at a slower pace than last year, according to an analysis from FitchRatings.

However, France, China and Japan are being tipped to see home prices decline, while UK prices are expected to be mostly flat.

“Mortgage rates will remain high in 2024 and 2025, which will continue to impact demand and discourage home sales, especially where many homeowners still benefit from low fixed rates,” it stated.

FAQs