2020 Outlook: Real Estate Market Forecast
We’re in the midst of the longest economic
expansion in U.S. history, and economists think there’s still room to grow. A
recent survey by the National Association for Business Economics found that
experts believe the U.S. economy will remain positive throughout 2020.[1]
Still, given that recessions are a natural
(and necessary) part of a business cycle, we know this period of growth will
inevitably end. So you may be wondering … how will an eventual recession impact
the real estate market?
Many Americans assume a recession would lead
to a decline in housing prices like we saw during the Great Recession of 2008.
But the real estate market crash we experienced wasn’t typical. In fact, the
last recession wasn’t typical at all. It was the worst economic downturn since
the Great Depression of the 1930s.
ATTOM Data Solutions analyzed real estate
prices during the last five recessions and found that, in the majority of
cases, home prices actually went up. Only twice (in 1990 and 2008) did prices
decline, and in 1990 it was by less than one percent.[2]
So what can historical precedent—combined with
today’s data—tell us about the future of real estate? Here’s where experts
predict the housing market is headed in 2020 and beyond.
HOME
PRICES WILL KEEP RISING
Economists predict U.S. housing prices will continue
to rise, regardless of a recession. In fact, property data firm CoreLogic
forecasts a faster rate of growth for home prices in 2020 than we saw in 2019,
with the biggest gains at the lower end of the market.[3]
Arch MI Chief Economist Ralph DeFranco expects
entry-level home prices to increase faster than incomes this year, making it
even more difficult for many first-time buyers to afford to enter the
market.[4]
“Low interest rates and a shortage of starter
homes will continue to push up prices,” predicts DeFranco. “This is especially
the case for lower price points, since builders have tended to focus on more
expensive, higher-profit houses and less on replenishing low inventories of
entry-level homes.”[4]
“Real estate is on firm ground with little
chance of price declines,” said National Association of Realtors Chief
Economist Lawrence Yun. “However, in order for the market to be healthier,
more supply is needed to assure home prices as well as rents do not
consistently outgrow income gains.”[5]
What
does it mean for you? If you have the ability and
desire to buy a home now, don’t let a fear of recession or falling prices hold
you in limbo. Economists expect home values, as well as rent prices, to
continue rising. So you’ll likely pay more the longer you wait.
INVENTORY
CONSTRAINTS WILL CONTINUE
According to Redfin, Americans are staying in
their homes longer. In 2019, the average homeowner had resided in their home
for 13 years, up from just eight years in 2010. That means there are fewer
homes available today for those who want to buy.[6]
It’s possible that an increase in new
construction could offer some relief. The National Association of Realtors
(NAR) expects single-family housing starts to total one million this year, the
highest level since 2007. And NAR Chief Economist Lawrence Yun predicts the
average price of new construction will decline slightly as builders shift to
building smaller, more affordable homes.[7]
However, these efforts may not be enough to
meet current demand.“Despite improvements to new construction and
short waves of sellers, next year will once again fail to bring a solution to
the inventory shortage,” predicts Realtor.com Senior Economist George Ratiu.
“In 2020, we expect inventory to struggle to grow and could instead reach a
historic low level.”[8]
What
does it mean for you? If you’re looking to buy a
starter home, be prepared to compete for the best listings. Start your search
early, and if you’re up against a deadline (like a new baby), build in plenty
of time to find the right home. We can help you assess your options, including
new construction and up-and-coming developments.
MORTGAGE
RATES WILL REMAIN LOW
Mortgage rates have declined more than a full
percentage point since November 2018, when they hit a recent peak of 4.94%.[9]The Mortgage Bankers Association predicts rates will remain low, at
around 3.7%, through mid-2021.[10]
While it may not seem significant, on a
$200,000 30-year fixed-rate mortgage, that lower rate means buyers could save
around $145 on their monthly payment and more than $52,000 over the life of
their mortgage. Lower mortgage rates make homeownership more accessible and
affordable for buyers.
Although economists expect mortgage rates to
stay low, they caution against waiting to act. Economic factors, shifts in
supply and demand, or unforeseen impacts of the November election could cause
rates to rise unexpectedly. “We recommend borrowers with long-term plans of
staying in their homes to lock in a low rate now because there’s no telling how
long these low rates will last,” warns Preetam Purohit, a capital markets
trader at Embrace Home Loans.[11]
What
does it mean for you? If you’re looking to buy a home,
act soon to lock in a historically low mortgage rate. It will minimize your
monthly payment and could save you a bundle over the long term. And if you plan
to stay in your current home for a while, consider whether it makes sense to refinance
your mortgage at today’s lower rates.
MILLENNIALS
WILL DRIVE THE MARKET
Millennials are expected to account for more
than half of all mortgages this year, outnumbering Generation X and Baby
Boomers combined. It’s not surprising, considering their age and stage of life.
In 2020, the largest cohort of millennials will turn 30, and the oldest
millennials will turn 39.[8]
“Family changes tend to drive home-buying
decisions,” explains Realtor.com Chief Economist Danielle Hale.
“Millennials are going to be active in the housing market not just because
they’re just at the age when they’re thinking about becoming first-time home
buyers, but they’re also in the age range when they’re having kids.”[12]
Younger millennials flocked to urban centers
that offered easy access to work, shopping, and restaurants. But high prices,
lack of square footage, and subpar schools are driving millennials out to the
suburbs as they begin to marry and expand their families.
In response, a new model for suburban living
has emerged. “Hipsturbias,” or mixed-use communities that bring the
live/work/play concept to the suburbs, were recently named one of the top real
estate trends for 2020 by the Urban Land Institute.[4]
What does it mean for you? If
you’re a millennial who has been priced out of urban living or is looking for
more space for your growing family, a number of suburbs in our area have a lot
to offer. We can point you towards the communities that will best meet your
needs. And if you’re a homeowner with plans to sell, give us a call. We know
how to market your home to millennials … and can help you sell quickly for top
dollar by appealing to this leading market segment!
WE’RE
HERE TO GUIDE YOU
While national real estate numbers can provide
a “big picture” outlook, real estate is local. As local market experts, we can
guide you through the ins and outs of our market and the issues most likely to
impact sales and home values in your particular neighborhood.
If you’re considering buying or selling a home
in 2020, contact us now to schedule a free consultation. We’ll work with you to
develop an action plan to meet your real estate goals this year.
Sources:
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