The current climate for both residential and commercial real estate, as well as the construction sectors, is far from ideal. The industry is grappling with persistent underbuilding, escalating construction costs, a shortage of labor, and high interest rates. These factors have propelled house prices to unprecedented levels, as noted by NPR. Compounding the situation, builders are hitting the brakes, and the combination of steep financing costs and economic uncertainties is stalling new projects and residential sales.

However, this downturn is not destined to last indefinitely. When the tide eventually turns, we could witness an extraordinary surge in the market.

Real estate is a significant player in the national economy. According to insights from the National Association of Realtors and the National Association of Homebuilders, the sector contributes between 14 to 18 percent to the country’s GDP. This signifies that any rebound will profoundly impact the U.S. economy, benefiting sellers, builders, contractors, lawyers, accountants, brokers, insurers, retailers, and a host of small- to mid-sized enterprises connected to the industry.

What conditions are necessary for this anticipated boom?

Primarily, mortgage rates need to decrease, ideally dropping below 5.5 percent. While many homeowners are enjoying sub-3 percent rates, they are not as numerous as one might think. Data from the Federal Housing Financing Agency reveals that approximately 22 percent of U.S. mortgages have interest rates under 3 percent. Meanwhile, about 14.3 percent of mortgages are at or above 6 percent. This leaves nearly two-thirds of mortgage holders with rates ranging from 3 to 6 percent, positioning them to re-enter the market once rates decline.

For these buyers, it will no longer be a big additional cost to buy a new home once current mortgage rates fall below 5.5 percent. Already, at today’s 6.2 percent rate on a 30-year mortgage, they can already save about $200 per month on a $550,000 house compared to the beginning of the year and its 7 percent rate. The trend is heading in the right direction. If inflation expectations are curtailed and bond market yields (which drive mortgage rates) decline a bit more, we could see that happening in the next 12 months.

On the commercial side, thanks to the Fed’s recent rate cut, prime rates are now at 7.25 percent; another percentage point drop could bring many buyers off the sidelines. Recent legislation giving significant tax deductions for buying and building new manufacturing facilities will also be a big help. As I have written previously, tariffs are starting to drive more manufacturers back to the U.S, a trend that will take some years to develop but will also create more demand for commercial properties. 

Stock prices will also have to hold or increase. U.S. markets remain near all-time highs, and because of that, household wealth remains high as well. The stock market is significantly intertwined with the U.S. economy and drives wealth, confidence and purchasing power. A drop in values would be a significant setback for the real estate industry.  

Although core economic metrics — GDP, jobs, capital availability — remain relatively good, there’s a growing threat of a bubble caused by a potential collapse in crypto or whether or not the AI boom is for real. Assuming these events don’t happen, which no one can yet predict, a continued strong stock and bond market will give more assurance to both potential and existing homeowners to increase their activity in the market once interest rates decline. 

Third, income levels must keep rising faster than inflation. Payroll company ADP has reported that the U.S. economy lost 32,000 jobs last month. With the Bureau of Labor Statistics on hiatus due to the shutdown, the ADP number was widely reported as — and deservingly so — not great news for the economy. But ADP also reported (and remember this is actual data from their payroll system covering millions of workers) that over the last month, wage gains among job stayers was 4.5 percent — and among job-leavers 6.6 percent.  

Inflation is currently running at about 2.9 percent, so wages seem to be staying well above price increases. Many younger earners have chosen to stay out of the housing market and instead pay rent, which makes economic sense in these high-interest rate times. But with income staying so far above inflation, and rates decreasing in the future, I can see many moving from being renters to ownership in the next few years. 

Fourth, Boomers will keep passing on the wealth. The number of people ages 65 and older is projected to more than double by 2040, reaching about 78.3 million, and a total of 88.8 million in 2060.

A recent report in Fortune summarizes the financial impact: 

America stands at the edge of the most dramatic shift in personal finance ever measured — a generational transfer of nearly $124 trillion in assets over just 25 years. According to a wealth transfer report from Boston wealth management firm Cerulli Associates, published in June 2025, a combination of demographic and economic forces will see a record amount of wealth move from baby boomers and older Americans to heirs, widows and charities by 2048. 

Now that federal estate tax exemptions have been permanently secured at high levels, with gift tax exemptions rising, a growing number of boomers and GenXers are putting money into trusts and other vehicles to begin passing down this wealth to the next generation. And, as these people pass on (yes, I’m one of them) even more wealth will pass down from them. This transfer of wealth will play a significant role toward helping the younger generations buy homes. 

Everything is a cycle. For the last few years, the real estate industry has been moving downward. But that will inevitably change. And when that change happens, this industry will see a boom unlike any boom it has seen before. When will this happen? No one knows. But soon, assuming the above factors continue on their trend.  

So if you are running a business in or related to this industry, hold firm. Build cash. Prepare for growth. 

Gene Marks is founder of The Marks Group, a small-business consulting firm.