U.S. Real Estate Market Outlook 2025 and Beyond

Introduction

After several tumultuous years, the U.S. real estate market in 2025 is entering a new phase marked by stabilizing trends and cautious optimism. Both residential and commercial sectors have weathered the shocks of the pandemic, rapid interest rate hikes, and high inflation. As we look at 2025 and the next few years, we find a housing market that remains undersupplied but gradually improving in inventory, and a commercial landscape where some sectors (like industrial and multifamily) remain robust while others (notably office) strive for recovery. Interest rates, which surged to multi-decade highs, are expected to moderate slightly, influencing buyer behavior and investment strategies. This report provides a comprehensive overview of current trends and forecasts through 2028, covering residential and commercial real estate, regional dynamics, key drivers, and the risks and opportunities facing investors.

Key takeaways: Home prices nationally have leveled off from the rapid gains of 2020–2022 and are now rising at a much slower pace (with some forecasters even predicting a modest decline in 2025) zillow.com. Sales volumes remain below pre-pandemic levels but are projected to pick up as mortgage rates ease and more supply comes on line realestatenews.com. Commercial real estate sectors are diverging: industrial and multifamily properties continue to benefit from strong demand, retail properties enjoy low vacancies, whereas the office market faces elevated vacancy rates but may be near its trough cbre.com cbre.com. Throughout the country, Sun Belt markets and other affordable regions are leading in growth, while some previously overheated markets work through slight price corrections nar.realtor. Demographic trends (such as Millennials aging into prime homeownership years), technological shifts (like remote work and e-commerce), and macroeconomic conditions will all shape the real estate landscape in the coming years. In the sections below, we delve into each aspect in detail, with an outlook through 2028 for various segments and regions.

I. Residential Real Estate Trends (2025)

Home Prices and Sales Volume

The rapid home price appreciation of the pandemic years has given way to a period of much slower growth in 2024–2025. Nationally, home prices are near record highs but increasing only modestly. In the first quarter of 2025, the median single-family existing-home price was about $402,300, up 3.4% from a year ago nar.realtor. This is a far cry from the double-digit annual gains seen in 2021–2022. In fact, only 11% of metro areas experienced double-digit price increases in early 2025 (down from 14% in late 2024) nar.realtor, and roughly 17% of markets saw year-over-year price declines in Q1 2025 nar.realtor. Some previously red-hot markets – for example, Boise, Las Vegas, Salt Lake City, San Francisco, and Seattle – had price drops in the last year or two but are now rebounding as buyers adjust to the new conditions nar.realtor. Conversely, a few markets that are still experiencing price declines (such as Austin, TX; San Antonio, TX; Huntsville, AL; Myrtle Beach, SC; and some Florida markets) have strong job growth and are expected to stabilize and recover in the near future nar.realtor. In general, affordable regions with solid economic and population growth are seeing the strongest price resilience, whereas some expensive coastal markets are flat or only slightly up, reflecting the limits of affordability nar.realtor.

Home sales volume has been depressed over the past two years, primarily due to the surge in mortgage rates. Existing-home sales in 2023–2024 fell to their lowest levels in around 30 years (hovering near a 4 million annual rate) as many buyers were priced out and potential sellers stayed put in their low-rate homes nar.realtor realestatenews.com. However, there are signs of a turning point. The National Association of Realtors (NAR) notes that pending home sales in late 2024 were finally ticking up slightly year-over-year nar.realtor, and inventory of homes for sale – both new and existing – has begun to inch upward after an extended drought nar.realtor. Pent-up demand is substantial: the U.S. population has grown by 70 million since 1995, yet annual home sales are roughly the same now as in 1995 nar.realtor. This suggests many households deferred purchases and could re-enter the market once conditions improve. Indeed, NAR’s chief economist forecasts a rebound in sales activity: after two very weak years, 2025 existing-home sales are projected to rise by about 6%, with new home sales climbing around 10% realestatenews.com. Other forecasts are more conservative – for example, Zillow predicts existing sales will increase only about 1.4% in 2025 (to ~4.12 million homes sold) zillow.com – but the consensus is that sales volumes will trend upward in 2025 rather than falling further. Going forward, as we discuss in the forecast section, most analysts expect home sales to continue a gradual recovery through 2026–2028, assuming mortgage rate relief and more new construction (see Forecasts in Section VII).

Housing Supply and Inventory Levels

Housing inventory – the number of homes available for sale – has been chronically low in recent years, which has propped up prices despite higher interest rates. The good news is that inventory is finally improving from its record lows. Realtor.com reports that the number of homes for sale by late 2024 was the highest since 2019, thanks to a combination of more new construction and slightly longer time on market for listings realtor.com. Even so, the market is still far from balanced: nationwide inventory in late 2024 was about 20% below the 2017–2019 average for that time of year realtor.com. In short, it’s a “glass half-full or half-empty” situation – conditions are easing, but buyers in many areas still face limited choices. Importantly, there is notable regional variation in the inventory recovery. The South and West regions have made the largest strides toward pre-pandemic inventory levels, while the Midwest and Northeast remain more constrained realtor.com. This likely reflects higher rates of new home construction and inbound migration in Sun Belt markets (more supply coming online), whereas many Midwestern and Northeastern markets have seen fewer new builds and more homeowners staying put.

On a broader scale, the U.S. housing market continues to struggle with a structural shortage of homes. A recent analysis by Zillow estimates the nation is roughly 4.5 million homes short of a “healthy” supply businessinsider.com. Builders have ramped up production in the past couple of years – U.S. housing starts hit their highest levels since 2006 – but tight labor, high materials costs, and land use regulations limit how quickly new supply can be added. In 2024, housing starts began to pull back slightly due to higher financing costs for builders. Looking ahead, Fannie Mae expects housing starts to dip a bit in 2025, then increase again in 2026 as demand picks up businessinsider.com. The Mortgage Bankers Association (MBA) similarly forecasts that new construction will be roughly flat in 2025 and then gradually rise thereafter businessinsider.com. This suggests that relief on the supply front will be incremental – likely preventing home prices from escalating too quickly, but not enough to erase the deficit overnight.

A major factor holding back existing housing inventory is the so-called “lock-in effect.” Millions of current homeowners secured 30-year mortgages at ultra-low rates (often 3% or less) during 2020–2021. With prevailing mortgage rates now around 6–7%, these owners face a huge penalty if they sell and buy a new house at current rates. As a result, many are choosing not to move, which keeps resale inventory off the market. NAR’s Lawrence Yun notes that this lock-in effect has been a drag on supply, but it should lessen over time as life events inevitably force moves (each year, there are millions of marriages, divorces, births, job relocations, and retirements that will prompt sales despite the rates) nar.realtor. Additionally, if mortgage rates tick down, more of these owners will be willing to list their homes. Indeed, should rates fall closer to “normal” levels in coming years (say, 5% or below), experts anticipate a surge of pent-up sellers finally entering the market, easing the inventory crunch businessinsider.com.

Rent Trends and the Rental Housing Market

The rental market surged in the immediate post-pandemic period, with rent prices climbing at the fastest pace in decades during 2021–2022. Since then, rent growth has cooled substantially as a wave of new apartment supply hits the market and affordability limits are reached. As of early 2025, national rent growth is modest – roughly in line with or slightly below general inflation. For example, the average U.S. asking rent in May 2025 was up only about 1.0% year-over-year yardimatrix.com, a sharp deceleration from the 10–15% annual rent spikes seen a couple of years prior. RealPage data show effective rents grew just 1.1% in the year ending March 2025, the highest annual gain in over a year but still a very subdued figure realpage.com. This cooldown reflects increased supply: developers delivered a surge of multifamily units in 2023–2024 – the highest level of new apartment completions since the 1980s mf.freddiemac.com. With more choices available, renters have gained bargaining power, and landlords in many cities have had to offer discounts or concessions to fill units.

Despite this flood of construction, demand for rentals remains robust, preventing any severe glut in most markets. The national rental vacancy rate was 7.1% in Q1 2025, up slightly from 6.6% a year earlier advisorperspectives.com. In other words, vacancies have inched up but are still low by historical standards (for context, rental vacancies were routinely 8–10% in the late 2010s). Many of the new apartments are being absorbed, albeit at a slower pace, because underlying rental demand is strong – the U.S. job market has grown, young adults continue to form new households, and the high cost of buying a home is keeping more people in the renter pool. Freddie Mac notes that multifamily demand has been “exceptional,” but the record-high new supply has kept rent growth modest and vacancy rates elevated in some areas mf.freddiemac.com mf.freddiemac.com. In 2024, national multifamily vacancy hovered around 6%, and **Freddie Mac’s baseline forecast calls for vacancy to edge up to about 6.2% in 2025 as even more new units come online mf.freddiemac.com. However, this is expected to be a peak; as construction slows in response to higher interest rates, the supply pipeline will shrink. Indeed, **multifamily developers are pulling back – new starts in 2025 are projected to fall well below pre-pandemic averages (around 30% below, according to CBRE) cbre.com. By late 2025 and beyond, the pace of new deliveries will moderate, allowing the apartment market to tighten again.

Rental price forecasts reflect this dynamic. Zillow’s latest outlook expects single-family home rents to rise about 3.2% in 2025 and multifamily (apartment) rents to rise around 2.1% zillow.com. Similarly, Freddie Mac predicts nationwide rent growth of roughly 2.2% in 2025, a bit below the long-term average rate mf.freddiemac.com. These modest increases in 2025 are actually an uptick from 2024, when rent growth hit a low point (near zero in many cities). In other words, rents are no longer surging, but they are still inching upward at a sustainable pace. It’s worth noting that rental trends vary by market segment: single-family rentals (houses for rent) are seeing stronger demand and rent growth than multifamily rentals, partly because many families unable to buy homes are seeking suburban houses to rent zillow.com. This is fueling investor interest in single-family rental portfolios.

Looking beyond 2025, many analysts anticipate rent growth will stay moderate in 2026 and then potentially accelerate again by 2027–2028 once the current construction wave is absorbed. A return to historical average rent increases (around 3% annually) is likely by the latter half of the decade mf.freddiemac.com. In fact, some regions are already outperforming: for instance, several Sun Belt and Midwestern cities continue to post above-average rent gains due to strong population inflows and job growth arbor.com. Overall, the rental market’s fundamentals (job growth, demographics) remain solid, but the balance between supply and demand will dictate rent trajectories. In the near term, robust supply is the story – keeping rents in check and giving renters more options. By 2026–2028, if construction pulls back as expected, landlords may regain pricing power, especially in markets with growing employment and limited new housing development.

II. Commercial Real Estate Trends by Sector

While residential real estate grabs most headlines, the commercial real estate (CRE) sector is a vast landscape encompassing office buildings, retail centers, industrial warehouses, apartments, hotels, data centers, and more. The outlook for CRE in 2025 is highly sector-specific, with performance diverging significantly across different property types. Below we break down the trends in the major sectors – Office, Retail, Industrial, and Multifamily – which collectively make up the bulk of the U.S. commercial property market. We highlight current conditions and what to expect in the coming years for each:

Office Sector

The office market has been the most challenged sector in commercial real estate since the pandemic. The rise of remote and hybrid work has structurally reduced demand for office space in many cities, leading to elevated vacancy rates and falling property values in this segment. As of 2024–25, many downtown office towers, especially older ones, are struggling with low occupancy. National office vacancy stands near record highs – around 18–19% of office space is vacant on average – and in some major urban markets the vacancy rate is well above 20% cbre.com cbre.com. Sublease space (offices that companies lease but are trying to sublet due to excess) also remains abundant. These conditions have put significant downward pressure on rents for commodity office space and have caused a wave of distress for office landlords with upcoming loan maturities. In short, the office sector is in a downturn.

That said, there are growing signs that the office market is bottoming out and entering a slow recovery cycle. According to CBRE’s 2025 outlook, office leasing activity began ticking up in 2024 and is expected to improve further in 2025, albeit modestly cbre.com. They project a 5% increase in overall office leasing volume in 2025, which would be a welcome reversal after several years of contraction cbre.com. Crucially, new construction of offices has slowed to a trickle, which will help limit further oversupply cbre.com. As companies adjust to hybrid work, many are concluding that they still need physical offices for collaboration and culture, just perhaps less space per employee or in different locations. Occupier sentiment is gradually shifting from pure contraction to stabilization and selective expansion, according to industry surveys cbre.com. Many tenants are renewing leases (often downsizing or “flight to quality” moves), which is stabilizing occupancy.

One clear trend is a bifurcation of the office market: newer, high-quality (“Class A”) office buildings with great amenities are seeing much healthier demand than older, outdated buildings. Prime office space – the top-tier buildings in each market – is actually becoming scarce in some cities as tenants consolidate into the best properties cbre.com. CBRE defines prime office as the best buildings; they expect prime-office vacancy to fall back to pre-pandemic levels (~8% vacancy) by 2027 due to this flight-to-quality demand cbre.com. In contrast, lower-quality offices will likely continue to struggle and may need to be repurposed (some may be candidates for conversion to residential or other uses, though conversion is often complex). Overall, office vacancy is forecast to “top out” around 19% nationally and then gradually decline as the economy grows and excess space is slowly absorbed cbre.com. We can expect only a steady, not rapid, revival in office: even by 2027, most analysts don’t foresee office demand returning to pre-2020 norms, but the worst of the downturn may be behind us. Investors are approaching this sector cautiously; there are opportunities to acquire distressed office assets at deep discounts, but the investment risk is high unless one focuses on modern properties in prime locations that are more resilient.

Retail Sector

The retail real estate sector – which includes shopping malls, strip centers, big-box stores, and downtown storefronts – has mounted an impressive recovery from its pandemic lows. Early COVID lockdowns hit brick-and-mortar retail hard, accelerating the shakeout of weaker retailers. However, the survivors have emerged into a landscape with very limited new supply and reduced competition. As a result, retail property fundamentals in 2025 are arguably the healthiest they’ve been in years. The national retail vacancy rate is under 5%, the lowest of any major commercial property type cbre.com cbre.com. In many markets, quality retail spaces (especially those in well-located suburban centers or grocery-anchored strips) are fully leased. One reason is that almost no new retail space has been built in the last few years, so demand has caught up to supply. Developers remain cautious about retail construction (partly due to the e-commerce threat), which means existing centers have little competition from new projects cbre.com.

Consequently, retail rents are beginning to rise after a long period of stagnation. Landlords in prime locations have regained pricing power – asking rents for retail space are expected to increase in 2025 given the low availability cbre.com. Many retailers, especially national chains, are responding by signing longer-term leases to lock in desirable sites before rents climb further cbre.com. Importantly, retail performance varies by format. Open-air neighborhood and community shopping centers (often anchored by supermarkets or essential goods) have thrived and enjoy high occupancy, whereas some older enclosed malls continue to face challenges unless they’ve been redeveloped or repositioned. That said, even malls saw a bounce-back in foot traffic in 2022–2023 as consumers returned to in-person shopping; Class A malls in affluent areas are doing reasonably well, while lower-tier malls are being repurposed (into mixed-use centers, logistics hubs, etc.).

Geographically, retail expansion is focusing on high-growth markets. Retailers are targeting metros with strong population and job growth – for instance, Phoenix, Austin, Dallas, Nashville, and Charlotte are cited as hotspots where retail leasing activity is gravitating cbre.com. These Sun Belt and growth markets not only have more people moving in, but often have cheaper housing (which leaves consumers more disposable income to spend in local stores). Additionally, areas with significant infrastructure improvements (e.g. new highways or transit expansions) attract new retail development as accessibility improves cbre.com. Institutional investors, who had shied away from retail for years, are slowly returning given the solid fundamentals. Overall, the retail real estate outlook for 2025 is cautiously optimistic: expect low vacancies and modest rent growth to continue, barring an economic downturn. One risk factor to watch is e-commerce: online sales are still growing (now ~15% of total retail sales), so physical retailers must continue evolving and offering experiences or convenience that online can’t match. But the narrative that e-commerce would kill all stores has proven false – instead, the U.S. now has a right-sized store footprint after years of consolidation, and the remaining centers are benefiting.

Industrial & Logistics Sector

Industrial real estate – primarily warehouses, distribution centers, and manufacturing facilities – has been a star performer in recent years. The boom in e-commerce and the restructuring of supply chains (including more inventory held domestically) drove record demand for warehouse space from 2020 through 2022. By 2023, the industrial sector’s vacancy rate hit historic lows in many markets (often under 4%). Developers responded with a wave of new construction, and some cooling occurred in late 2023 as leasing demand normalized. Entering 2025, the industrial market remains fundamentally strong, though not as frenzied as during the peak of the e-commerce surge. Nationwide industrial vacancy ticked up with the influx of new warehouses, but it is still relatively low and the market is considered “tenant-favorable” in the short term cbre.com. Older, less efficient warehouses are seeing higher vacancy as tenants gravitate to newer “high-cube” facilities – a “flight to quality” similar to the office trend cbre.com. However, conditions are expected to tighten again toward the end of 2025 as the construction pipeline slows and demand keeps growing cbre.com.

Several factors are shaping industrial demand in 2025. First, trade policy and reshoring trends are influential: higher U.S. tariffs on foreign goods (implemented in 2024) have prompted some companies to increase inventories domestically (to import goods before tariffs hit) and to consider more U.S. or near-shore manufacturing cbre.com. CBRE notes this could spur increased demand for industrial facilities near the U.S.–Mexico border and along major north-south logistics corridors (like the I-35 and I-29 highways) cbre.com. Markets such as San Antonio, Austin, Dallas–Fort Worth, Oklahoma City, Kansas City, Des Moines, and Minneapolis are highlighted as likely beneficiaries of these shifts, due to their geographic position for continental trade routes cbre.com. Second, the composition of industrial tenants is evolving: third-party logistics (3PL) firms are taking a larger share of leases, as companies outsource their warehousing needs to specialized operators. CBRE projects that 3PLs will account for over one-third of industrial leasing volume in 2025 cbre.com, reflecting the trend toward more flexible, on-demand supply chains.

In terms of volume, industrial leasing nationwide is forecast to total just over 800 million square feet in 2025 cbre.com. This would be below the pandemic-era peak (2021 saw extraordinary demand) but still above the pre-pandemic norm cbre.com. Essentially, the industrial sector is transitioning from hyper-growth to a more sustainable growth rate. On the supply side, after multiple years of “prolific building”, developers are pulling back. New industrial construction starts are declining sharply – expected to be more than 50% lower in 2025 than in 2024 cbre.com. This pause is allowing the market to absorb the existing speculative projects that came online. By late 2025, as those spaces fill, the pendulum could swing back toward landlords, especially for modern facilities in key logistics hubs. Rent growth for industrial space is therefore likely to remain positive but moderate in the near term – landlords may offer concessions in markets with a temporary glut, but overall rental rates are supported by inflation and high replacement costs. In summary, the industrial sector’s outlook remains very positive: continued e-commerce expansion, supply chain reconfigurations, and limited new supply in the pipeline point to healthy fundamentals. Barring a major recession, warehouses should enjoy high occupancy and steady rent increases over the next several years, making industrial properties a continued favorite for institutional investors (including real estate investment trusts and private equity funds).

Multifamily (Apartment) Sector

The multifamily sector (large apartment properties with 5+ units) is often considered part of residential real estate, but it is also a core commercial asset class for investors. In 2025, multifamily is experiencing a unique moment: a huge supply influx paired with strong tenant demand. As noted earlier, 2023–2024 delivered a record number of new apartment units, causing the national apartment vacancy rate to creep up and rent growth to slow. For investors, this translated to higher concessions and flatter net operating income in certain high-supply markets over the last year. Despite that, multifamily fundamentals are far from weak – they are simply normalizing from an exceptionally tight market. As we move through 2025, the pressure from new construction is expected to start easing. CBRE forecasts that vacancy will actually decline slightly in 2025 (to around 4.9% by year-end, down from ~5.3% in late 2024) and average rents will resume growing at roughly 2.6% for the year cbre.com. Likewise, Freddie Mac anticipates 2025 rent growth in the low-2% range and only a minor uptick in vacancy to about 6.2% (RealPage measure), assuming the economy achieves a soft landing mf.freddiemac.com. In essence, the multifamily market in 2025 should remain balanced – neither a renter’s market nor a landlord’s market nationally – with slight improvement compared to 2024.

One key factor is that household formation is expected to stay strong. Demographics and economics favor ongoing rental demand: job growth, while slower than the post-pandemic burst, is still positive, and the large millennial cohort is in prime family-forming age. Many of these young adults continue to rent, either by preference or because high home prices and interest rates delay their first home purchase. Additionally, immigration (which picked up again in 2022–2023) contributes to rental housing demand. As long as the U.S. economy avoids a serious recession, we should see millions of new renter households over the next few years, which helps absorb new supply.

Geographically, the story of supply is very concentrated. A large share of recent apartment construction has been in Sun Belt states – notably Texas, Florida, the Carolinas, Georgia, Arizona, and pockets of the Mountain West. In fact, 10 of the 16 major U.S. multifamily markets have already passed their peak construction levels, and the remaining six are expected to peak in 2025 as projects finish up cbre.com. This suggests that by 2026, virtually all big markets will see declining deliveries. Sun Belt metros, which led the development wave, are likely to cool in the short term (with higher vacancies in cities like Austin or Nashville this year), but they also have robust population growth to eventually fill those units. Coastal gateway cities (like New York, Los Angeles, San Francisco) had comparatively less new construction and remain undersupplied in rental housing; these markets are seeing occupancy hold strong and rents picking up again as urban migration returns. A notable trend is investors’ growing interest in Midwest multifamily. Some Midwest metros (e.g. Indianapolis, Kansas City, Cincinnati) offer high affordability and stable economies, and forecasts predict sustained rent growth in the Midwest, potentially 4–5% annually in coming years multihousingnews.com as those markets catch up from a low base.

From an investment perspective, multifamily properties continue to be viewed as one of the lower-risk commercial asset classes – people always need a place to live. However, higher interest rates have hit multifamily valuations, since investors can no longer rely on cheap debt to boost returns. Capitalization rates (property yield measures) for apartments have risen off their 2021 lows, which means prices have come down somewhat even as rents rise. CBRE expects cap rates to stabilize or compress slightly in 2025 as financial conditions ease cbre.com cbre.com. In practical terms, this could mean 2025–2026 is an attractive window for multifamily investment, before interest rates potentially fall further and drive prices back up. Risks to multifamily include any significant economic downturn (job losses reduce renters’ ability to pay) and localized oversupply in a few markets, but nationally the long-run outlook is solid. By 2026–2028, once the current crop of new units is absorbed, many markets may find themselves undersupplied again, putting upward pressure on rents. Developers, mindful of higher financing costs, are not overbuilding on a national scale – in fact, multifamily housing starts in 2025 are expected to be well below the levels of the past few years cbre.com. This sets the stage for a favorable supply-demand balance a few years out.

(Note: Other commercial sectors like hotels and data centers also merit mention. Hotels have rebounded strongly with travel demand, though higher interest rates cap new development. Data centers are experiencing extraordinary growthdue to cloud computing and AI – 2025 demand is “white hot,” with record-low vacancies under 3% and record levels of construction, as per CBRE cbre.com. However, for brevity, we focus on the primary sectors requested.)

III. Interest Rates and Mortgage Trends

Interest rates – particularly mortgage rates – play a pivotal role in the real estate market. Over the past two years, the rapid rise in interest rates has been the single biggest headwind for housing. In 2020–2021, 30-year fixed mortgage rates hovered around 3%, fueling a buying frenzy. By late 2023, that same rate had more than doubled, reaching 7% or higher, the highest in about 20 years. This jump was a direct result of the Federal Reserve’s aggressive tightening to combat inflation: as the Fed raised its benchmark rates in 2022 and 2023, borrowing costs across the economy climbed. High mortgage rates dramatically worsen affordability – for example, a $2,000 monthly payment covers a much smaller loan at 7% interest than it did at 3%. According to NAR, the monthly payment on a typical home (with 20% down) rose to about $2,120 in early 2025, up 4.1% from a year prior despite slower home price growth nar.realtor. Many buyers have been sidelined by this affordability squeeze, and home sales dropped to recessionary levels in 2023–24 largely because of mortgage rates.

The good news for 2025 is that the interest rate environment appears to be stabilizing, and relief is on the horizon. With inflation coming down from its peak, the Federal Reserve has eased off on rate hikes. In fact, the Fed executed a few small rate cuts in late 2024 nar.realtor, and as of mid-2025 the federal funds rate is expected to remain steady or even decline further if inflation permits. However, it’s important to note that mortgage rates are not likely to fall in lockstep with Fed cuts nar.realtor. In late 2024 when the Fed started cutting, mortgage rates barely budged – NAR’s Yun pointed out factors like a “bloated federal deficit” are keeping upward pressure on long-term interest rates, preventing mortgages from dropping quickly nar.realtor. Instead of a sharp decline, most analysts see a gradual easing of mortgage rates over the next few years. Fannie Mae’s latest forecast expects the 30-year fixed rate to be around 6.2% at the end of 2025 and about 6.0% by the end of 2026, only a modest improvement from roughly 6.6–6.7% in mid-2025 mpamag.com. The Mortgage Bankers Association is a bit more optimistic, envisioning rates potentially dipping into the mid-5% range by 2026–27, but even that is far above the ultra-low rates of recent memory. In short, borrowing costs will likely remain elevated relative to the 2010s, though somewhat lower than the 2023 peak.

For homebuyers, this means 2025–2028 will require adjusting expectations. Buyers may need to accept slightly higher financing costs as the “new normal”, at least for the medium term. There are implications for mortgage product choices: when rates were 3%, nearly everyone locked in 30-year fixed loans. At 6–7%, we see more interest in adjustable-rate mortgages (ARMs) or temporary buydowns (where sellers or builders subsidize the rate for the first couple of years) to ease initial payments. We also see creativity such as assumable mortgages gaining attention – some buyers will pay a premium for a home if they can assume the seller’s low-rate FHA or VA loan. Lenders have begun introducing new programs (like 40-year loan terms or shared equity products) to help with affordability. These trends will continue so long as rates stay relatively high. On the flip side, if and when rates do fall, there could be a refinancing boom as homeowners rush to lower their mortgage payments. Currently, refinance activity is very low (since few want to refinance a 3% loan into a 6% loan), but by 2026–2027, if rates drop a point or two, millions of borrowers could benefit from refi – this is something the mortgage industry is eyeing hopefully.

It’s also worth noting the impact of rates on investors and developers. Commercial real estate deals have slowed in the past year because the cost of debt is up and underwriting is tougher. Cap rates (investment yields) have had to adjust upward, as mentioned, and some highly leveraged investors are facing challenges refinancing. The volume of multifamily and commercial mortgage originations fell sharply in 2023–24. But with the outlook for slightly lower rates, industry forecasts expect investment activity to pick up. CBRE predicts a 5–10% increase in commercial real estate investment volume in 2025 as confidence in the economy grows and buyers/sellers narrow their price expectations cbre.com cbre.com. On the residential side, total mortgage originations (purchase + refinance) are projected to rise from the trough: Fannie Mae estimates roughly $1.98 trillion in mortgage originations in 2025, increasing to $2.33 trillion in 2026 as home sales recover and refinancing trickles back mpamag.com. These figures are still below the $4+ trillion seen in the 2020 refi boom, but the direction is upward.

In summary, interest rates will remain a critical swing factor for real estate through 2028. The baseline expectation is for moderate declines in mortgage rates over the next few years, but not a return to the extreme lows. Real estate activity (both buying and building) should gradually strengthen as rates ease. However, all forecasts come with the caveat that unexpected inflation or economic shocks could change the interest rate trajectory. For now, the consensus is that the worst of the rate shock is behind us, and the environment will slowly get more favorable for borrowers and investors. As one mortgage executive put it, “We anticipate rates will fall slightly, although not to the historic lows where they once were” mpamag.com. Planning for 6% mortgages today, with the possibility of refinancing to 5% tomorrow, is a prudent approach for homebuyers in this period.

IV. Regional and City-Level Highlights

Real estate is famously local. While national trends provide a backdrop, regional differences across the U.S. have been pronounced in recent years – and are poised to continue. Here we highlight some regional and city-level developments in the housing market, as well as major metros to watch:

• Sun Belt Boom (Southeast and Southwest): The Sun Belt region (stretching across the South from Florida to Texas, and into the Southwest and parts of the West) has been the standout of the past decade, and it continues to lead many metrics. States like Florida, Texas, the Carolinas, Georgia, Arizona, and Tennessee have seen robust population and job growth, attracting both individuals (including remote workers and retirees) and corporate relocations. This in-migration has fueled housing demand and kept home prices relatively buoyant in these areas. Many Sun Belt metros experienced double-digit price appreciation through 2022; some of those markets cooled in 2023 (even seeing slight price dips) but are generally holding up. For example, Miami, FL’s median home price rose about 9% in the past year realtor.com and Orlando, FL saw prices up over 12% year-on-year realtor.com, according to Realtor.com’s forecasts, indicating continued strength. Meanwhile, Austin, TX, which was a poster child of the pandemic housing frenzy (prices jumped nearly 40% in two years), saw a correction of home values in 2023. As of early 2025 Austin’s prices are down a bit from their peak, but the city’s economy is strong and population growth is high, so NAR expects Austin will “see prices recover in the near future” nar.realtor. The common thread in Sun Belt markets is affordability (relative to coastal cities), lower taxes, job creation, and warmer climate – these drivers are expected to persist through the late 2020s. Investors particularly favor markets like Dallas–Fort Worth, Atlanta, Phoenix, Tampa, and Charlotte, which have size and growth on their side. One caveat is climate and insurance: areas in coastal Florida and the Gulf Coast face rising insurance costs (due to hurricanes and flooding), which could dampen affordability and buyer interest over time if not addressed.
• High-Cost Coastal Markets: The expensive coastal metros – such as New York City, San Francisco Bay Area, Los Angeles, Boston, Washington D.C., and Seattle – have had a more mixed performance. Many of these markets saw a brief price drop in 2020 (as remote work enabled moves out of dense cities) followed by a surge in 2021 when urban life resumed. By 2022, several coastal cities again faced headwinds: out-migration (people moving to cheaper areas), and in some cases, tech sector layoffs (especially in San Francisco and Seattle) affected demand. In 2023, San Francisco notably saw median home prices decline year-over-year, and its home values remain roughly flat (+1.5% YOY in Q1 2025) nar.realtor – essentially, the Bay Area market has been treading water. However, there are signs of stabilization: cities are attracting residents back. NAR’s data showed that after the “suburban shift” during the pandemic, 2024 saw the largest uptick in people moving back into city centers in a decade nar.realtor. Young professionals are returning for jobs and amenities, and international immigration (which concentrates in gateway cities) is picking up. So while New York or San Francisco may not see the explosive growth of an Austin or Nashville, they still have very tight housing supply and high incomes, which should support prices. For instance, eight of the top ten highest-priced metro markets are in California (e.g., San Jose’s median price is over $2 million, up 9.8% YOY) nar.realtor. These markets are pricey due to long-term underproduction and desirable location, and prices are expected to inch up slowly as long as inventory stays scarce. Housing affordability is a major issue on the coasts, with homeownership rates very low (in the Bay Area, less than 55% of households own homes) nar.realtor. This points to continued political pressure for more housing development and affordability measures, which could shape these markets over the next decade.
• Midwest Stability: The Midwest hasn’t been in the limelight, but it has quietly become attractive to some due to its relative affordability and stable economies. Cities like Columbus (OH), Indianapolis, Kansas City, Milwaukee, and Minneapolis didn’t experience huge booms or busts; instead, they’ve had steady, single-digit home price growth and lower volatility. In 2024–2025, Midwestern metros are seeing some of the strongest sales activity recovery, as buyers priced out of expensive regions look for cheaper homes. For example, Realtor.com’s analysis identified several Midwestern markets among the top 10 for 2025 in terms of sales and price growth potential realtor.com. Notably, Colorado Springs, CO (sometimes grouped with the Mountain West) ranked #1 on their list, Virginia Beach, VA (a more affordable Southeast coastal city) was #3, and Greensboro, NC was #10 realtor.com. While not all of those are Midwest proper, the general trend is secondary cities with good quality of life are on the rise. The Midwest also often boasts higher cap rates (rental yields), which is drawing investors to places like Cleveland or Detroit for single-family rentals and multifamily acquisitions. The expectation is that Midwestern housing markets will have moderate, steady growth without the dramatic swings seen elsewhere. One factor to watch is population: some Midwest areas still see population stagnation or slight declines, which can cap housing demand. But metros with growing healthcare, education, or manufacturing job bases are doing well.
• Northeast Corridor: The Northeast corridor (Boston to D.C.) is a mix of dynamics. New York City’s housing market has recovered from its 2020 slump; Manhattan rents hit record highs in 2022 and condo prices have stabilized. The suburbs around NYC (New Jersey, Long Island, Connecticut) remain strong due to limited inventory. Boston has a resilient market driven by education and biotech jobs – prices there have continued to rise moderately. Philadelphia and Baltimore are more affordable metros in this corridor that have seen upticks as alternatives to D.C./NYC. Washington D.C. itself has been relatively flat on home prices recently, partly due to a large supply of high-rise condos and some population outflow, but the area’s high incomes and limited land for single-family homes keep the detached housing market competitive. The Northeast generally has older housing stock and slow growth, meaning supply is tight. As long as the regional economy (which is heavy in government, education, finance, and healthcare) remains stable, housing will likely appreciate slowly. One interesting trend is higher interest rates hitting high-cost markets harder – a 7% mortgage on a $1 million New Jersey home is far more costly than on a $300k Ohio home. Thus, the affordability pinch in the Northeast has been severe. This could temper price growth in the short term until either rates fall or incomes catch up.
• Regional Affordability and Migration Patterns: Overall, affordability is a key determinant of regional performance. Regions that were extremely affordable a few years ago (Southeast, parts of the West like Idaho/Utah) saw big price run-ups as people moved in, and now those areas are less cheap than they were – which has cooled their markets slightly. Meanwhile, regions that never boomed (parts of the Midwest/Northeast) are now relatively attractive bargains. We continue to see migration from high-cost states to lower-cost states: for example, states like California, Illinois, and New York have seen net out-migration, whereas Florida, Texas, the Carolinas, Tennessee have net in-migration. This is expected to persist, influenced by remote work flexibility and retirees seeking warmer, cheaper locales. Florida deserves special mention: it had an enormous influx of residents (and home price growth ~40% over 3 years). Recently, some Florida markets (like Naples, Tampa, parts of South Florida) have leveled off due to priced-out locals and insurance concerns, but Miami and Orlando are forecast as top performers for 2025 in terms of sales and price growth realtor.com, illustrating that Florida’s appeal remains strong.

In Table 1 below, we summarize a few examples of regional housing indicators to illustrate the diversity:<table> <thead> <tr><th>Metro Area (Region)</th><th>Q1 2025 Median Home Price</th><th>YoY Price Change</th></tr> </thead> <tbody> <tr><td>**San Jose, CA (West Coast)**</td><td>$2,020,000</td><td>+9.8%:contentReference[oaicite:92]{index=92}</td></tr> <tr><td>**Naples, FL (Sun Belt)**</td><td>$865,000</td><td>+1.8%:contentReference[oaicite:93]{index=93}</td></tr> <tr><td>**San Francisco, CA (West Coast)**</td><td>$1,320,000</td><td>+1.5%:contentReference[oaicite:94]{index=94}</td></tr> <tr><td>**Honolulu, HI (Pacific)**</td><td>$1,165,100</td><td>+7.3%:contentReference[oaicite:95]{index=95}</td></tr> <tr><td>**Urban Honolulu was one of the few non-continental markets in the top 10 most expensive list**.</td><td></td><td></td></tr> </tbody> </table>

(Table 1: Examples of Q1 2025 median single-family home prices and annual price changes in selected metro areas. Even among the highest-priced markets, growth varies – e.g., San Jose’s tech-driven market saw nearly 10% gain, whereas San Francisco was almost flat nar.realtor. Florida’s Naples saw only +1.8% as its previously red-hot market cooled nar.realtor.)

As the data show, most metro markets reached new record highs for prices by 2025, even if growth has slowed nar.realtor. The affordability challenge is nation-wide but most acute in pricey metros. In early 2025, a family needed over $100,000 annual income to afford a median home (with 10% down) in nearly 45% of markets nar.realtor. Conversely, there are still a few places (about 3% of markets) where a family earning $50,000 could afford a home nar.realtor – these tend to be smaller Midwestern or Southern towns. This gap underlines why people relocate. Looking ahead, we expect continued regional reshuffling: affordable markets with good job prospects will draw more residents (supporting their housing markets), whereas extremely unaffordable markets will rely on higher-income buyers or see slower growth. Nonetheless, no region is monolithic – local factors like a new factory opening, a tech company expansion, or a natural disaster can sway a city’s real estate. Real estate stakeholders will need to stay attuned to these micro-level developments even as they track the macro trends.

V. Key Demographic, Technological, and Economic Drivers

Multiple underlying forces are shaping the real estate landscape. In this section, we discuss the key demographic, technological, and economic drivers that are impacting housing and commercial real estate. These factors help explain the trends observed and provide insight into how the market may evolve through the next few years.

• Demographic Shifts: Demographics are destiny for housing demand. The U.S. is in the midst of a generational handoff. Millennials (born ~1981–1996) – the largest generation in the workforce – are now mostly in their late 20s to late 30s, prime ages for household formation and homebuying. This cohort has been a bit delayed in purchasing homes compared to previous generations (due to factors like student debt and the 2008 crisis aftermath), but they are now coming into the market in force. In fact, the median age of a first-time home buyer has risen to 38, an all-time high nar.realtor, reflecting how long it’s taking Millennials to save for down payments amid high prices. Many are leaning on family assistance: 25% of first-time buyers used a gift or loan from relatives, and 7% used inheritance – also record highs nar.realtor. As Millennials mature, their preferences could shift from starter condos to larger suburban homes, boosting demand in family-friendly areas. Right behind them, Gen Z (born ~1997–2012) is starting to enter adulthood; the oldest Gen Zers are in their mid-20s and beginning careers, often as renters. Over the next 5 years, Gen Z will add significantly to rental housing demand and eventually starter-home demand (though likely later in the 2020s for buying). Meanwhile, Baby Boomers (born 1946–1964) are well into retirement age. Many Boomers are choosing to “age in place,” staying in their homes longer than prior generations did, which contributes to low housing turnover. However, some are downsizing or relocating – often to sunnier climates or to be near grandchildren – thereby influencing markets like Florida, Arizona, and the Carolinas. Boomers were active homebuyers in 2023–24, even outpacing younger buyers in some quarters, often because they have equity and can pay cash. In fact, all-cash purchases are at record highs, accounting for 26% of home sales (and over 30% of repeat-buyer sales) recently nar.realtor, partly due to older buyers trading down or using accumulated wealth. Another demographic trend is the rise of multigenerational households. NAR reports an all-time high 14%–17% of buyers are purchasing multigen homes to accommodate aging parents or adult children moving back home nar.realtor. Cost savings and cultural preferences drive this, and it increases demand for larger single-family homes with in-law suites, etc. Finally, overall population growth in the U.S. had slowed in the late 2010s but got a boost from increased immigration post-2021. International immigration is a key factor in household formation, especially in gateway cities and for rental demand. Provided the U.S. continues to admit immigrants at a healthy clip, this will bolster housing demand in the coming years (each new immigrant family needs housing, whether rental or owned). In summary, demographics are generally favorable for housing: a large cohort is entering homeownership age, life events will spur moves despite rate lock-ins, and population gains will keep pressure on supply nar.realtor. One concern is affordability for younger buyers – if home prices and rates remain high, Millennials and Gen Z might form households more slowly or turn more to renting, which could alter the homeownership rate trajectory.
• Technological Trends: Technology is influencing real estate in multiple ways. Perhaps the most consequential is the rise of remote work technology, which has untethered many workers from the office. This has already reshaped residential demand – enabling people to move farther from city centers or to entirely different regions (as seen in the Sun Belt migration). Remote work is expected to endure in some hybrid form, meaning housing demand will likely remain dispersed. Workers can prioritize affordability and space (home offices) over commute times, which benefits suburban and exurban real estate. However, as mentioned, there are signs some companies are calling employees back, so urban housing isn’t obsolete by any means. On the commercial side, remote work tech is the fundamental challenge to the office sector, as detailed earlier. Another tech trend is the growth of e-commerce. Online shopping’s expansion (accelerated by the pandemic) has increased the need for logistics real estate (warehouses, fulfillment centers) while pressuring certain retail formats. Mall landlords have responded by adding experiential tenants (like entertainment venues, gyms, medical offices) that are “internet-proof.” The interplay of tech and retail will continue: expect more omnichannel retail (stores as showrooms/fulfillment centers for online orders) which could actually support occupancy of well-located retail spaces. In housing, technology is making transactions more efficient. The proliferation of online listing platforms (Zillow, Redfin, Realtor.com) and virtual tours has given buyers unprecedented access to information. Digital mortgages and e-closings are simplifying the purchase process. These efficiencies don’t change supply and demand, but they do make the market more transparent and perhaps reduce some friction (though bidding wars can still be fierce!). Another area is proptech and smart homes: many new homes and apartment buildings now come with smart thermostats, security systems, and IoT devices, which can be selling points. Technologically, construction methods are also evolving (though slowly) – for example, modular construction and 3D printing of homes are being explored to reduce costs and speed up building, potentially an important factor if adopted at scale to address housing shortages. Data analytics and AIare increasingly used by real estate investors to identify opportunities (e.g., using algorithms to find undervalued properties or predict market shifts). Looking at specific sectors: data centers themselves are a booming real estate category thanks to cloud and AI growth – as noted, vacancy in data centers is around 2.8% and massive capacity is being added cbre.com. The need for digital infrastructure (data centers, cell tower sites) is a newer demand driver land developers consider. Lastly, tech industry dynamics can heavily sway certain markets. The big tech hubs (San Francisco, Seattle, Austin) saw their housing markets fluctuate with tech company fortunes. As of 2025, the tech sector is recovering from layoffs, which bodes well for those local real estate markets to pick up again. Over 2025–2028, if AI and other innovations spur a new tech boom, expect high-cost tech hubs to face renewed housing crunches unless they build more housing.
• Economic and Policy Factors: Broader economic conditions are always fundamental drivers. Job growth, income trends, and GDP growth directly affect real estate demand. The U.S. economy in 2025 is expected to grow modestly – CBRE forecasts about 2.0% to 2.5% GDP growth in 2025 cbre.com, a bit above trend, assuming a soft landing. This growth is fueled by consumer spending (household balance sheets are still in decent shape) and easing financial conditions. Strong job creation in 2023–24 occurred even as home sales slumped, which suggests there’s latent housing demand if conditions improve realestatenews.com. If employment stays robust (unemployment holding around 4–4.5% per forecasts) cbre.com, people will form households and invest in real estate. Wage growth is another factor – wages have been rising, but not as fast as home prices in many areas, hurting affordability. If wage inflation continues at ~4-5% annually while home price growth moderates to 2-3%, that would gradually restore some balance. Inflation itself affects real estate by influencing interest rates (as discussed) and construction costs. Construction cost inflation was very high in 2021–22 (materials and labor shortages). That has eased a bit, but building a home is still significantly more expensive than pre-pandemic. Any improvement on supply (and thus affordability) depends on construction productivity and costs; policy efforts to reduce regulatory barriers or provide subsidies could help. Government policy will remain a wild card. At the federal level, there’s talk of first-time buyer assistance (down payment assistance programs, tax credits) which could stimulate demand if enacted. However, the bigger impact is likely at state/local levels: zoning reforms to allow higher density, faster permitting, and incentives for affordable housing could gradually increase supply in tight markets. States like California and Oregon have begun mandating more housing production and legalizing accessory dwelling units (ADUs), which in the long run can add units. Another economic factor is the financial environment: credit availability. Banks have tightened lending standards somewhat in reaction to higher rates and economic uncertainty. This affects not only homebuyers (who may find it harder to qualify or need to pay higher fees) but also real estate developers (who face stricter underwriting for construction loans). If the banking sector stabilizes and rates come down, credit should loosen, enabling more real estate activity. Conversely, any financial shocks (say a liquidity crisis or a debt ceiling issue causing rate volatility) could hit real estate sentiment quickly. Fiscal policy (government spending and deficits) also matters; a large federal deficit is cited as a reason long-term rates are staying high nar.realtor. Should the U.S. reduce deficits, it might alleviate some upward pressure on bond yields and thus mortgage rates. And of course, tax policy influences real estate – current discussions include potential changes to SALT deductions, or investor-related taxes, which can shift buying incentives in high-tax states or for rental property owners.

In summary, the demographic tailwind of a growing number of prime-age buyers and renters underpins long-term housing demand, technology is reconfiguring where and how people live and work (impacting different property types unevenly), and the economic backdrop – interest rates, job growth, inflation – sets the overall momentum for real estate. These drivers are interconnected: for instance, if technology allows more remote jobs in the Midwest, that’s a demographic/economic shift for that region. Or if economic policy tamps down inflation, that technological boom in data centers can proceed without overheating the power grid (another tech-econ link mentioned with nuclear power being explored for data center energy cbre.com). Real estate participants will need to monitor these macro drivers closely. The next few years will likely see continued adaptation to the “new normals” of post-pandemic life, higher interest rates than the 2010s, and evolving preferences of a new generation.

VI. Investment Risks and Opportunities

The real estate market of 2025–2028, while promising in many respects, also carries a unique set of risks and opportunities for investors – be they large institutions or individual homeowners/landlords. Below we outline key risks to be mindful of, as well as opportunities that could be capitalized on in this period:

Top Investment Risks:

• High Interest Rates and Financing Costs: Elevated interest rates increase borrowing costs, which can erode investment returns or home affordability. If rates stay higher for longer than expected (or spike again due to inflation), financing real estate deals will remain challenging, potentially depressing property values. Many commercial investors who bought at low rates face refinancing risk – refinancing loans at today’s rates can be untenable, leading to default or distressed sales in some cases. This is particularly a risk in the office sector, where declining values and high rates collide (a wave of commercial mortgages on offices comes due 2025–2026). Rising cap rates can reduce property values across all sectors, at least in the short term, which is a risk for current owners.
• Possibility of Economic Downturn: While the base case is a soft landing, there’s always risk of recession – whether due to Fed over-tightening, global shocks, or geopolitical events. A recession with significant job losseswould hurt real estate demand (fewer homebuyers, more apartment vacancies, struggling retailers, etc.). Sectors like hotels and luxury housing are especially sensitive to economic swings. Even a moderate downturn could amplify other risks, such as tenant defaults or increased vacancy. Investors must underwrite with conservative assumptions on rent growth and maintain cash reserves to weather a dip.
• Market Bifurcation and Obsolescence: As discussed, certain property types (older offices, outdated shopping centers, older apartments without amenities) may become functionally obsolete or at least far less competitive. The risk is that capital gets “trapped” in these assets with no easy exit – for example, an older office building might require huge investment to convert to residential, and even then local zoning or economics might not support it. Investors holding secondary quality assets in challenged locations could face value traps. Similarly, on the residential side, homes in areas with declining populations or poor climate resiliency might underperform. Knowing what not to buy is as important as finding the right deals.
• Regulatory and Political Risks: Real estate is subject to regulatory changes. One risk is rent control or tenant protection laws expanding in response to affordability issues. Already, some states and cities have implemented rent caps which can limit income growth for landlords. Another risk is property tax increases as municipalities seek revenue – this can hit commercial owners and even homeowners hard (as seen in some Sun Belt cities where rapid appreciation led to tax hikes). On the development side, zoning law changes can be a double-edged sword: while loosening rules can create opportunity (more density allowed), stricter environmental or design regulations can add cost. At the extreme, any talk of eliminating 1031 exchanges or raising capital gains taxes on real estate sales could affect investor behavior (though nothing imminent federally).
• Climate and Environmental Risks: Climate change is an increasingly pertinent risk in real estate. Properties in coastal flood zones, hurricane-prone areas, wildfire regions, or drought-stricken areas face higher insurance costs and potential value impairment. For instance, parts of Florida have seen insurers pull back, raising concerns about long-term insurability of properties. Likewise, Western states have wildfire issues that can make some rural luxury markets risky. Environmental regulations aiming to improve resilience (like requiring elevation or fire-resistant materials) can add cost to development or renovation. Investors need to factor in climate risk to avoid properties that might literally be underwater or uninhabitable in a few decades.
• Execution and Liquidity Risks: In a more volatile market environment, executing large projects or turnaround strategies carries execution risk. For example, buying a distressed office to convert to apartments might run into unexpected construction complexity or community opposition. Meanwhile, liquidity risk means the ability to sell a property at a fair price quickly may be impaired if market sentiment turns or debt markets seize up (as happened briefly in early 2020). Real estate is illiquid by nature, so investors must be prepared to hold longer. Flippers or short-term speculators could get caught by market swings.

Despite these risks, the coming years also present numerous opportunities:

Key Opportunities:

• Buying in a Buyer’s Market (Selective Opportunities): After the frenetic seller’s market of 2020–2022, many areas (especially high-end homes and certain investor-heavy markets) have cooled. Individual homebuyers in 2025 may face less competition, more inventory, and even price cuts on some listings – a welcome change from bidding wars. Those who are financially prepared can potentially negotiate better deals, especially if they target motivated sellers (e.g., someone who needs to relocate quickly). For investors, the slowdown has created chances to acquire properties at a relative discount from recent peaks. For instance, some Sun Belt cities where prices overshot (Boise, Austin, Phoenix) had corrections; savvy investors are watching these for a good entry point before growth re-accelerates.
• Distressed Asset Acquisitions: With the higher interest rates, certain property owners are in distress – notably in the office sector, but also some over-leveraged multifamily owners or developers of unsold new homes in softer markets. This environment is reminiscent of the early 1990s or post-2008 in terms of distress opportunities. Institutional investors with dry powder are gearing up to purchase non-performing loans or foreclosed properties at a discount, particularly offices that can be repurposed. Even some hotels and retail properties can be bought below replacement cost and repositioned. The window for acquiring distressed assets will depend on how long high rates persist and how banks handle troubled loans (extend vs. foreclose). But for those with patience and capital, the next 1–3 years could offer once-in-a-cycle buying opportunities, with eventual outsized returns if properties are rehabilitated or if rates drop (boosting values).
• Growth in Underserved Sectors and Markets: Certain sectors have strong tailwinds that make them attractive for development or investment. As noted, industrial/logistics remains a high-demand sector – building modern distribution centers in key nodes (or even converting empty big-box retail into fulfillment centers) can be lucrative. Multifamily housing is needed virtually everywhere; while big luxury apartment complexes are being built, there’s a shortage of affordable/workforce housing. Developers focusing on mid-market rental housing, or investors in manufactured home communities, could see stable returns and less competition. Single-family rentals (SFR) is another growth area – large institutions are still buying or building homes to rent, and individuals can also benefit from this trend (especially in markets with high rental demand from those who can’t buy). Regionally, emerging secondary markets like Cleveland, Pittsburgh, Louisville, Oklahoma City, etc., which missed the huge run-up, now often have solid rent yields and potential for appreciation as remote work broadens talent location. These markets are on the radar for yield-seeking investors and could outperform if the migration of people and companies continues to spread out.
• Value-Add and Repurposing Plays: In an aging real estate stock, there is ample opportunity to add value through renovation or change of use. For example, investors are buying 1970s-’80s vintage apartment buildings and renovating units to capture higher rents – a classic value-add strategy that still works given the premium tenants place on updated finishes and energy-efficient appliances. In the retail realm, turning a struggling mall into a mixed-use “town center” with apartments and offices is an opportunity many developers are pursuing (with some success stories already). And as mentioned, office-to-residential conversion is a buzzworthy idea: while it only pencils out for a subset of obsolete offices (due to layout and cost issues), cities like Washington D.C. and New York are offering incentives for such conversions, potentially creating future valuable residential units out of vacant offices. Early movers in figuring out these conversions can capitalize on both cheap acquisition costs and civic support.
• Riding the Demographic Wave: Demographic-driven opportunities include building or investing in senior housing/55+ communities (demand will grow as Boomers age), student housing in markets with expanding universities, and entry-level homes for Millennials finally buying (builders who can deliver smaller, more affordable homes stand to gain a large market). Another angle is multigenerational homes – builders might incorporate designs that accommodate extended families, tapping into the trend NAR identified nar.realtor. Investors might also look at properties in urban centers that could benefit from the return of younger people – e.g., small multifamily or co-living spaces in cities where rents fell but are now rebounding as people come back.
• Interest Rate Upside: Interestingly, the very thing that’s a risk (high rates) also creates upside potential. If an investor buys now at a higher cap rate and finances at a higher interest rate, there is a built-in upside if/when rates decline – they could refinance at a lower rate in a couple of years, boosting cash flow, and the property’s value might rise simply due to cap rate compression (as cheaper debt allows buyers to pay more). Homebuyers similarly can view today’s rate as “marry the house, date the rate” – i.e., buy the right home and refinance later. The potential for rate relief acts as a tailwind for those who act while others sit on the sidelines. Indeed, Fannie Mae’s survey suggests many experts expect mortgage rates to gently fall and approach more historically normal levels in coming years mpamag.com mpamag.com. Locking in a purchase or investment before that happens could mean buying at a relative discount and enjoying appreciation when broader demand comes back.

In weighing risks vs. opportunities, investors (large and small) should maintain discipline and due diligence. Real estate is a long-term, cyclical game. The period of 2025–2028 will likely reward those who are selective – focusing on strong locations, sustainable demand drivers, and realistic exit strategies – and who have a cushion to withstand short-term volatility. Prudent measures like fixing interest rates or having interest rate hedges, keeping loan-to-value ratios moderate, and building in contingency budgets for projects can mitigate many of the risks listed. On the opportunity side, being prepared (with capital or financing lined up) to move quickly when a good deal appears is key, as the competition will return in force if conditions improve. Overall, while the market has its uncertainties, real estate remains an asset class with intrinsic value and proven resilience, and the next few years offer a landscape to buy quality assets at better prices than a couple of years ago – a prospect that savvy investors find enticing.

VII. Outlook and Forecasts for 2025–2028

What do the next few years hold for the U.S. real estate market? Forecasting is always tricky, but most major analysts foresee a period of gradual normalization and growth rather than boom or bust. Here we compile outlooks for different segments and highlight consensus expectations through 2028:

Home Prices: After the extreme run-up during 2020–2022 (national home prices rose ~40% in that span), the market essentially took a breather in 2023–2024, with flat or slight gains. Looking ahead, most forecasts call for modest appreciation in home values – generally in the low single digits annually – at least for the next couple of years. The table below shows projections from several reputable sources:

Forecast Source	Expected Home Price Change 2025	Expected Home Price Change 2026
Fannie Mae (FNMA)	+4.1% mpamag.com	+2.0% mpamag.com
National Assoc. of Realtors	+3% businessinsider.com	+4% businessinsider.com
Mortgage Bankers Association	+1.3% businessinsider.com	+0.3% businessinsider.com
Zillow Research (Home Value Index)	–1.4% zillow.com (decline)	(Not forecast)
Expert Panel (100+ economists)	+3.4% fanniemae.com	+3.3% fanniemae.com

Table 2: Selected home price growth forecasts for 2025 and 2026. Most experts anticipate continued growth, but at a slower pace than recent years – on the order of 0% to 4% per year. (Fannie Mae and NAR are relatively optimistic, MBA more conservative, and Zillow predicts a slight drop in 2025 before possibly returning to growth.) All foresee moderationrather than any steep fall or new spike.

As the table indicates, there is a range of views. NAR’s updated outlook (as of early 2025) expects prices to rise around 3% in 2025 and accelerate to 4% in 2026 businessinsider.com – essentially in line with income growth. Fannie Mae is a bit higher for 2025 (+4.1%) but then sees a cool-off to +2% in 2026 mpamag.com, perhaps assuming more supply by then. MBA is the most cautious, barely above zero growth through 2026 businessinsider.com, implying high rates keep a lid on prices. Zillow’s view of a mild decline in 2025 (–1.4%) zillow.com underscores that if inventory rises and buyer demand remains soft, we could see slight price erosion in some areas, though their revision trend was upward (they had expected –1.9% earlier, improved to –1.4%). An expert survey by Pulsenomics/Fannie Mae found consensus of roughly +3.4% and +3.3% for 2025 and 2026 fanniemae.com, respectively – basically a return to normal, sustainable growth. Beyond 2026, while fewer formal forecasts are published, many experts suggest home prices will continue to rise at a similar low-single-digit rate through 2027–2028 (assuming no new shock), supported by the supply shortfall and solid demand. If mortgage rates materially drop in the late 2020s, price growth might pick up a bit, but that would also improve affordability, creating a more balanced market.

Home Sales and Construction: On the sales front, 2025 is widely expected to mark the beginning of a recovery from the depressed volumes of 2023–24. NAR projects existing-home sales to increase by about 6% in 2025 (and another ~11% in 2026) realestatenews.com, though those percentages were trimmed from earlier rosier forecasts. Fannie Mae downgraded its forecast for 2025 existing sales from an 11% jump to a ~4% rise (roughly 4.9 million sales) as of May 2025 housingwire.com. Zillow’s model has a smaller uptick of ~1–2%. The trajectory depends heavily on mortgage rate movement: a dip into even the low 6% or high 5% range by late 2025 could unleash a lot of pent-up activity. By 2028, some analysts think we could get back to a more “normal” volume of 5.5–6 million existing-home sales annually (last seen in 2019), but that might be optimistic if rates stay elevated. New home sales have actually held up better (new construction filled some inventory gap), and forecasts (NAR, Fannie) have those rising in the 10% range in 2025 as builders continue to attract buyers with rate buydowns and incentives realestatenews.com. Housing starts may dip slightly in 2025 (from ~1.34 million in 2024 to perhaps 1.3 million) then trend upward 2026–2028 toward the mid-1 millions if demand permits businessinsider.com. Importantly, those levels are still below what’s needed to fully close the housing deficit, so any under-building means support for home prices in the medium term. Rental housing construction is expected to slow substantially by 2026 (after peaking in 2024–25), which by 2027 could tighten rental markets again.

Mortgage Rates and Financing: Interest rate projections generally foresee a gradual decline: as noted, Fannie Mae sees ~6.0% by end of 2026 for 30-year fixed mpamag.com. The MBA is a bit more bullish, reportedly expecting around 5.5% by 2027. By 2028, if inflation is at or under 2%, one could envision mortgage rates in the mid-5% range, which historically is still normal (and quite affordable compared to the 1980s!). The Federal Reserve is likely to pivot to a neutral or easing stance through 2025 as long as inflation behaves, which should bring down short-term rates and eventually long-term yields. One wildcard is the Fed’s balance sheet (quantitative tightening) and global demand for U.S. bonds – those can keep long-term yields higher than expected (as we saw in 2023). But consensus is that the peak of rates is over, and late 2020s should have lower or at least not higher rates than early 2020s. This should be positive for both housing and commercial real estate. Mortgage credit availability might expand again as rates dip – expect more first-time buyer programs, bank portfolio loans, and perhaps a comeback of non-QM (non-standard) loans as lenders get more comfortable. For commercial, debt markets by 2026–27 may loosen such that deals penciling out gets easier (cap rates might compress a bit as a result, boosting values modestly cbre.com).

Rental Market: In the rental arena, 2025 and 2026 are shaping up to be years of absorption – lots of new apartments will be absorbed by the growing number of renter households. The expert panel predicts rent growth nationally around 3% annually those years, which is moderate mf.freddiemac.com. Some firms like Yardi or CBRE expect slightly lower in 2025 (~2-2.5% as we saw) mf.freddiemac.com cbre.com. By 2027 and 2028, rent growth could tick up if vacancy tightens after the construction lull – possibly back to 3-4% a year in line with income growth. Vacancy rates for multifamily might peak around 6-7% in 2024-25 then edge down to perhaps the low 5% range by 2027. Single-family rentals should remain in high demand and might see rent growth outpacing apartments (mid-single digits) as families seek space. Homeownership rate might slowly climb again later in the decade if affordability improves, but for the next year or two it could stagnate around 65% (it recently fell to 65.1%, a five-year low, due to tough buying conditions) advisorperspectives.com advisorperspectives.com. If mortgage rates go down, we could see some renters finally becoming homeowners, nudging the homeownership rate up by 2028 back to maybe 66-67%, but that also depends on construction of entry-level homes.

Commercial Sector Outlook: Each commercial sector has its own recovery timeline:

• Office: Office is the slowest to recover – expect high vacancies through 2025–2026, with slight improvement year by year. By 2028, the office market will likely have bifurcated sharply: prime offices in prime locations could be near full and commanding solid rents, while older offices might be only half-occupied or converted. We could see overall office vacancy drift down from ~19% in 2025 to perhaps mid-teens by 2028 if the economy is strong and some stock is removed from inventory (conversions/demolitions). Rent growth in office will be minimal until vacancy recedes; landlords will continue offering concessions in most markets for a few years. Investors are viewing 2025–2026 as a time to reposition or buy distressed offices with a thesis that by 2028–2030, those assets (the ones that are well-located and updated) will be producing better income.
• Retail: Retail’s outlook is stable-to-positive. Vacancies are projected to remain low (in the 4-5% range nationally) as little new supply is coming. Retail rent growth could run in the low single digits per year, and high-traffic retail in growing suburbs could even see mid-single-digit rent bumps as tenants compete for limited space. Some retail formats (like open-air centers) will be highly sought by investors; cap rates might compress slightly for these favored segments given the strong fundamentals cbre.com. By 2028, we may see new retail development pick up again if consumer spending stays strong – possibly more ground-up projects in Sun Belt markets where population growth demands new grocery stores and services. But generally, retail is now in a equilibrium where demand and supply are matched, so it should deliver steady returns without major swings.
• Industrial: Industrial is poised to continue its growth trajectory albeit at a more measured pace. Warehouse demand is structurally supported by e-commerce and supply chain reconfiguration (like more safety stock inventory domestically). After the 2023–2024 cooldown, leasing volume in 2025 is still robust (800+ million sq. ft.) cbre.com and expected to stay strong. CBRE notes it’s returning to “pre-pandemic drivers,” which implies consistent absorption. So industrial vacancy might hover around 5% in 2025 and could even tighten to 4% or below by 2027 if construction remains curtailed. Rents for industrial space have grown at double-digit percentages recently; this will likely slow to perhaps 3-5% annually going forward – still healthy. One interesting factor: new cold storage, data center (industrial-like) facilities, and manufacturing sites (due to reshoring) might add to demand beyond traditional distribution. By 2028, industrial real estate may face the need for modernization (e.g., older stock without high clear heights could be further discounted), but overall it’s one of the best-performing sectors long-term.
• Multifamily: Multifamily by 2028 should be on the upswing after digesting current supply. The late 2020s could see a return to a construction cycle upswing if rents accelerate again. The near-term (2025–2026) is characterized by stable operations – slight vacancy rise then fall – and rent growth around inflation. For context, the Fannie Mae expert panel expects national home price growth ~3.3% in 2026 fanniemae.com; rent growth often parallels income and price growth, so mid-3% is plausible for apartments as well by mid-decade. By 2027–2028, as fewer new projects deliver, occupancy could tighten, possibly pushing rent growth above 4% in some markets (especially if job growth is good). One wildcard is renters’ incomes: if wage growth continues strong, that gives landlords room to raise rents more. Conversely, any push for rent controls or tenant protections could limit rent increases in certain cities.

Regional Outlook Highlights: Regions that are growing (Southeast, Texas, Mountain West) are expected to continue doing so. Home price growth through 2028 is likely to be strongest in the Carolinas, Florida, Georgia, Texas, and pockets of the Mountain states – markets there might see cumulative 15%+ gains over the next 4 years, compared to maybe half that in the Northeast/Midwest. However, even some Rust Belt cities might surprise with steady growth if they successfully attract remote workers or new industries (e.g., the new Intel factory in Columbus, Ohio could spur housing demand there). Coastal California will probably underperform the Sun Belt in percentage terms, but still see low positive growth, simply because it started from such a high base and affordability remains tough. By 2028, some previously lagging markets (say, Chicago or Baltimore) might pick up if they enact pro-housing policies or as people return to cities, but these will likely remain stable rather than high-growth markets.

Affordability and Homeownership: A big question is whether housing will become more affordable by 2028. If our forecast components hold – modest price growth and slightly easing mortgage rates – then household incomes (which are rising ~4% a year lately) could start to catch up. This would incrementally improve affordability. For example, in early 2025 a median family devoted ~24% of income to a mortgage on a median home nar.realtor; that might fall to under 22% by 2028 if rates drop and income rises. Such an improvement could bring more first-time buyers into the market. Homeownership rates might then tick back up after stagnating. Any government intervention to aid first-timers (down payment assistance, etc.) would also influence this. On the rental side, if more renters become buyers later in the decade, that could slightly ease rental demand, but given the sheer deficit of units, rentals should remain in high use.

Summing Up the Trajectory: By 2028, the U.S. real estate market is anticipated to be on firmer footing – the excesses of the pandemic boom fully worked off, inventory in both for-sale and rental markets somewhat improved, and mortgage rates hopefully settled into a moderate range. We do not see signs of a systemic crash (no widespread mortgage credit issues like 2008), so any adjustments are likely to be regional and gradual. In fact, the resilience shown in 2023–24 – when prices broadly held or kept rising slightly even under 7% rates – suggests a level of underlying support. The enduring housing shortage and demographic demand act as guard rails against deep price declines on a national scale businessinsider.com. In the commercial arena, 2028 could witness a renaissance of sorts: many distressed assets transacted in mid-decade could be turning around by then, and sectors like office might have a fresh start with leaner supply and repurposed stock.

Of course, uncertainties abound. Geopolitical events, policy changes, or black swan events (another pandemic?) could shift these outlooks. But absent those, the baseline scenario for 2025–2028 is cautiously optimistic: residential real estate should see a slow-but-steady upswing in sales and construction, with gentle price upticks, while commercial real estate gradually recovers with certain winners (industrial, multifamily, prime retail) leading the way and troubled segments finding their equilibrium through adaptation. Investors and homebuyers who navigate the next few years with patience and prudence may find themselves well-positioned to benefit from the more normalized and sustainable growth phase that is expected to follow.

Sources:

• National Association of Realtors – 2024–2025 Housing Market Forecasts and Data nar.realtor nar.realtor realestatenews.com
• Zillow Research – Home Value & Sales Forecast (May 2025) zillow.com zillow.com
• Fannie Mae Economic and Housing Outlook (April/May 2025) mpamag.com mpamag.com
• Freddie Mac Multifamily Outlook 2025 mf.freddiemac.com
• CBRE Research – U.S. Real Estate Market Outlook 2025 (Dec 2024) cbre.com cbre.com cbre.com
• Realtor.com – Top Housing Markets for 2025 (Dec 2024) realtor.com realtor.com
• U.S. Census Bureau – Housing Vacancies and Homeownership Report Q1 2025 advisorperspectives.com advisorperspectives.com
• NAR Quarterly Housing Price Trends (Q1 2025) nar.realtor