Realtor.com has recently published its housing market predictions for 2020. In the forecast, analysts looked at four areas: supply, demand, home sales, and the move to affordability.
Low affordability and higher interest rates caused growth in the housing inventory, while higher housing prices and higher interest rates raised barriers to entry. Houses sat on the market, and mortgage rates dropped. Borderline buyers entered the market. At the start of 2019, two out of three markets were seeing inventory growth. By the end of 2019, only one in ten markets were seeing inventory growth, placing housing into acute shortage mode. Acute shortage mode will drive prices up and create an opportunity for new home construction.
Several factors impact demand. A low-interest-rate environment, rising rents, and the growing millennial population broadened the potential home buyer pool and kept alive a robust demand in 2019. Buyer sentiment reached a high point in the summer months and energized sales growth in the fall. By the end of 2019, low affordability and economic uncertainty cooled buyer sentiment.
According to the article, “For the first time ever, Millennials’ share of mortgage originations will surpass 50 percent in the spring, outnumbering Gen X and Baby Boomers combined. The last generation to take more than half of all purchase originations was Gen X in 2013, just six years ago. Accordingly, other generations’ footprint will continue to contract, with Gen X and Baby Boomers taking 32 and 17 percent of mortgage originations respectively.”
3) Home sales
The decrease in sales is projected to be accompanied by flattening growth in price. With the supply of available homes continuing to be delicately balanced, and the entry-level demand expected to remain strong, prices are estimated to rise by 0.8% in 2020.
4) Move to affordability
Forecasters highlight a cultural feature of the Millennials that has impacted real estate development nationwide. Millennials are currently drawn to the city.
The article explains, “A dominant trait of this real estate cycle has been the renaissance of the urban downtowns. As younger generations returned to downtown cores, employers and developers responded by building offices, retail, and housing in high-density environments. However, as the costs of development and construction rose, so did housing prices, especially given the propensity for builders to bring mostly high-end, luxury products to market. Over the past decade, demand for downtown living trended on an upward curve, driven by a desire for proximity, and lifestyle amenities, especially on the part of Millennials.”
However, aging Millennials are maturing and starting families. They have shifted their priorities and are looking for more affordable housing outside the bustle of the city. On the other end of the spectrum, Baby Boomers are looking for lower taxes, a milder climate, and more affordable living in general.
What will 2020 be like for buyers?
Buying a home in 2020 will offer opportunities for some buyers. The supply of new homes will relieve some pressure on inventory, and prices will tend to move toward affordability. The inventory of new homes in 2019 remained focused on the high-end, but, as the luxury market cooled, builders signaled their intent to increase offerings in the mid-price segment. First-time buyers will continue to struggle with finding a home where they want it and at a price they can afford. They will still struggle to some extent, even with mortgage rates in an approachable range, since entry-level inventory is expected to remain somewhat tight. The widespread moderation in price will continue to offer opportunities in mid-sized markets in the Midwest and South.
What will 2020 be like for sellers?
Quoting from the article: “Sellers in 2020 will contend with flattening price growth and slowing activity, requiring more patience and a thoughtful approach to pricing. Sellers of homes priced for entry-level buyers can expect the market to remain competitive and prices to stay firm. At the upper end of the price range, however, properties will take longer to sell, and incentives will be needed to close deals. As the market moves toward a more balanced scenario, sellers who adjust to local market conditions can expect to benefit from continuing demand.”
How Will the 2020 Presidential Election the economy?
While some political elections can have an impact on the economy and housing markets, the outcome of elections is not linked directly to the performance of the markets. Expectations linked to a political party’s or an administration’s likely legislative or regulatory actions can influence confidence and decision-making.
The report provides the following forecast for key housing indicators:
- Existing home sales will decline by 1.8%.
- Single-family home housing starts will increase by 6%.
- Home price growth will flatten, with a forecasted increase of 0.8%.
- Inventory will remain constrained, especially at the entry-level price segment.
- Mortgage rates are likely to bump up to 3.88 percent by the end of the year.
- Tight inventory and rising mortgage rates will lead to dropping sales.
- Buyers will continue to move to affordability, benefiting mid-sized markets.
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