Housing and real estate experts are out with their 2020 market predictions, and they’re well worth a look – especially if you’re in the market for a new home next year – or looking to sell one.
Let’s take a glimpse and see what shots the gurus are calling for real estate in 2020, with these 12 top predictions foremost in the housing market crystal ball.
U.S. Real Estate Predictions for 2020
Home Sellers Will Sit 2020 Out
Realtor.com predicts residential property inventory to "evaporate" in 2020. "That will make it more challenging for buyers to find a home despite attractive interest rates," the Santa Clara, Cal.-based company states.
Millennials Will Get Aggressive About Buying Homes
Realtor.com also notes that one demographic will be big buyers in 2020 – even if inventories are thin. That’s the millennials.
Apparently, younger buyers are eschewing inner-city living and have their sights set on 1,800 square-foot homes in the suburbs, with good neighborhoods and decent schools. Millennials will take more mortgages than baby boomers and gen-x’ers in 2020, the company predicts. Down payments from millennial buyers will also likely be bigger than ever.
Realtor.com also says millennials – with the oldest members approaching 40 and the biggest cohort turning 30 in 2020 – will surpass 50% of all home purchase mortgages.
Home Prices Will “Flatten.”
They also predict that U.S. home prices will flatten, increasing just 0.8% nationwide. Prices will decline in more than 25% of the 100 largest metros, including Chicago, Dallas, Las Vegas, Miami and San Francisco, according to Realtor.com.
The Housing Market Will Be “More Competitive.”
Seattle-based Redfin predicts the U.S. housing market will be more competitive in 2020 as the cool-down that began in the second half of 2018 comes to an end.
"Low mortgage rates started to revitalize the market at the end of this summer, but we won't see their full impact on demand for housing until next year," says Redfin chief economist Daryl Fairweather. "In 2020, buyers will have fewer homes to choose from than they have in five years. But the return of bidding wars is good news for sellers who may have been holding out this year as the market stabilized. The competition and faster price growth will tempt more homeowners and builders to list homes, which will help improve the balance between supply and demand by the end of the year."
Go South, Young Buyer
Redfin also notes that southeastern U.S. states will rule the roost on the home price appreciation price. “Charleston and Charlotte will lead the nation in home-price growth as more people and employers move to affordable Southeast cities,” the company states.
Expect "Bidding Wars"
Thanks to low mortgage rates and thin residential housing inventories, sellers can expect bidding wars in 2020, Redfin reports.
“Low mortgage rates will continue to strengthen homebuying demand, but due to a lack of new homes for sale and homeowners staying put longer, there will be fewer homes on the market in 2020 than in the past five years,” the company predicts. “More demand and less supply mean bidding wars will rebound in the first quarter.”
Altogether, Redfin expects about one in four offers to face bidding wars in 2020 compared to only one in 10 in 2019. “This increase in competition will push year-over-year price growth up to 6% in the first half of the year, considerably stronger than the 2% growth seen in the first half of 2019,” the company states. “Supply and demand will become more balanced later in the year as more listings of new and existing homes hit the market and price growth will moderate to 3%.”
Mortgage Rates Stabilized at the Low End of the Range
Expect 30-year fixed mortgage rates to remain low, hovering around 3.8%, Redfin predicts.
“Faced with slowing economic growth, the Federal Reserve will keep interest rates low,” Redfin reports. “Although the housing market is strong, weakness in other sectors, like manufacturing, is pulling down on the economy.”
The company does see some leeway on rates, dependent on the U.S. economy in 2020. Because investors are already bracing for the possibility of a recession, Redfin doesn't expect mortgage rates to fall much lower than 3.5% in 2020 even if the economy weakens. If the economy strengthens, Redfin expects mortgage rates to stay below 4.1%.
. . . But Mortgage Rates Decline Should Be Temporary
Mortgage rates matter, but the current decline won’t last, experts say.
"More than any other factor with the potential to impact home-buying demand through 2020, mortgage rates are viewed by our expert panel to be most significant," says Terry Loebs, founder of Pulsenomics, a housing industry analysis and research firm located in Boston, Mass.
Loebs says that although 30-year mortgages are near 18-month lows and available now at rates below 4%, “the near-term outlook for home prices has actually weakened a bit” from the previous survey in February. "Together, these data suggest that most experts believe the recent rate move is a temporary dip, and that home-buying demand through next year will be dampened by other, more persistent factors that affect affordability, such as constrained inventory and the growth of house prices relative to wages."
If a Recession Occurs, Housing Won't Be Overly Affected
There is talk of a U.S. recession next year, although that sentiment is becoming muted after strong economic numbers in December. And if an economic slowdown does occur, the housing market will weather the storm.
“Unlike past recessions, there is now an extremely low inventory of homes,” says Dr. Ralph G. DeFranco, global chief economist for Arch Capital Services Inc., in Walnut Creek, Cal. “That’s why we expect the price of entry-level homes to once again grow faster than incomes in 2020.”
First-time homebuyers are in a difficult spot because builders aren’t constructing enough homes at the more affordable end of the market, DeFranco says. “But the positive side is that low inventory and very high mortgage quality will likely limit the severity of a future recession, though we aren’t predicting when the next downturn could occur,” he says.
According to Realtor.com, Hispanic Americans will gain more wealth from home equity than white Americans for the first time ever. That’s because the majority of new homeowners are Hispanic and home values in Hispanic neighborhoods are increasing faster than in white neighborhoods, the company states.
Analysts at Realtor.com point to Texas as a Hispanic homeowner hotspot. There are more Hispanic homeowners in Texas than in any other state and Texas cities are likely to experience strong gains in home values over the next decade as people move there from expensive cities like San Francisco and Los Angeles, Realtor.com predicts.
Climate Change Is Now a Buying Factor
2020 will mark the first decade where climate change will factor into home-buying decisions. “The financial costs of climate change are already becoming more tangible as fire and flood insurance premiums rise,” Realtor.com reports. Over the next decade, higher insurance premiums in high-risk areas will make housing even less affordable to more people. And in areas with the highest risk, insurers may stop providing insurance altogether, which means it will be nearly impossible to secure a mortgage in those areas.
Overall, U.S. Home Values to Rise in 2020
According to Matthew Gardner, chief economist at Windermere Real Estate in Seattle, home values will be up by 2.9% in 2020, and that should lead to more buying activity.
“I feel confident that 2019 will end with a slight rise in home sales,” Gardner states in his annual real estate prediction list for Windermere. “For 2020, I expect sales to rise around 2.9% to just over 5.5 million units.”
Gardner expects home prices next year will continue to rise as mortgage rates remain very competitive. “Look for prices to increase 3.8% in 2020 as demand continues to exceed supply and more first-time buyers enter the market.”
In the year ahead, Gardner says he anticipates the volume of first-time homebuyers to grow, “making them a very significant component of the housing market.”
Gardner says he also expects new home prices to rise by 2.5% in 2020.