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SHOW NOTES FOR EPISODE 344: 2020 US HOUSING MARKET PREDICTIONS
It’s that time of the year again when all the “experts” are making their predictions for the 2020 real estate market. In this episode, Bill examines and shares some of the key forecasts and the major implications for real estate investors.
So far, 2019 has been a promising year for both real estate investors and would-be homebuyers in the US housing market. Throughout the year, the rise in home prices has started to slow, mortgage rates dipped to unexpected lows, and many predicted that a buyer’s market might be on the horizon. Moreover, the economy is in good shape, the job market is robust, and the unemployment rate is down. All this is good news for anyone thinking of buying an investment property right now. But what are the top housing market predictions for the US real estate market 2020?
We’re now in the third quarter of 2019 and it seems that it’s still a seller’s market in most cities across the nation. Plus, some housing experts and economists predict the next recession will likely begin in 2020. So, will that seller’s market continue? Should home sellers feel pressure to close deals quickly? And what does all of this mean for those buying an investment property? Though no one can accurately predict the future of the real estate investing industry, we can do our best to make an educated guess based on available – but don’t hold me responsible if the research is flawed. Let’s take a look at the US housing market forecast 2020 for home prices, home sales, mortgage rates, and more.
Home Prices & Appreciation Will Grow (at a Slower Rate)
In their 2019 housing market forecast, the National Association of Realtors or NAR had predicted that the national median existing-home price would rise to around $266,800 in 2019 (up 3.1% from 2018). Going into 2020, NAR predicts another rise of about $274,000 in the median home price. In fact, numerous experts have lowered their housing market predictions for the next 5 years for home prices and appreciation rates. According to Zillow’s Home Price Expectations Survey (which surveyed a panel of over 100 real estate and economic experts), experts forecast that home prices will rise only 2.8% in 2020 nationally. This tells us that prices will go up – just at a slower rate. So, the idea of watching home prices skyrocket, as in previous years, no longer applies.
As for property appreciation rates, experts have similar predictions. According to the latest VeroFORECAST™ report from Veros® Real Estate Solutions (Veros), housing market data shows the average expected appreciation rate for residential real estate in the 100 largest markets in the US will be 3.7% over the next year (ending June 1, 2020). This maintains the rate predicted in Q1 of 2019 and indicates a leveling out after a 4-quarter decline from a 4.5% appreciation rate a year ago. According to Eric Fox, Veros VP of Statistical & Economic Modeling and author of the report, this flattening in appreciation indicates that although there is definite softness overall in the US housing market, the fundamentals are still healthy.
Of course, these housing market predictions and trends vary by region as demand and housing supply are key discriminators between markets. Some may experience a large jump while others could see relatively small gains. For example, the Midwest states of Indiana, Michigan, and Ohio are showing strength with an average statewide real estate appreciation for all three expected to be around 5% according to Veros. Texas, however, is predicted to experience continuing softening with major markets like Dallas and Houston forecast to see appreciation between just 2% and 3%. Home prices in California are also expected to remain relatively soft as properties in all major markets including Los Angeles, the Bay Area, and San Diego are expected to appreciate between 2.5 and 4.5%.
New & Existing Home Sales Will Remain Low
Compared to the beginning of 2018, home sales have been slow since the start of 2019 even though market conditions are more favorable for buyers now than they have been for quite some time. And some experts providing US housing market predictions believe that this trend will occur again at the beginning of 2020. In its Home Price Expectations Survey, Zillow asked real estate experts for their expectations about the next recession and how home-buying demand will change through the end of next year. The majority of those experts (51%) said they expect home-buying demand in 2020 to be significantly lower than in 2019. About a third (32%) said they expected home-buying demand to be about the same in 2020 as in 2019.
One reason for poor sales across the nation is the fact that first-time buyers can’t afford the record prices that home sellers are demanding or the prices of new housing stock being built. According to ATTOM Data Solutions, homes are becoming even less affordable. While employment and wages are better, the cost of owning the typical home is still out of reach for the average wage earners in 74% of US housing markets. Put together, the fading home-buying demand and increasing unaffordability are signs of weakening sales of both new and existing homes in the US real estate market 2020.
These housing market predictions also differ by location. Some real estate markets actually became more affordable than their historical averages according to ATTOM Data Solutions. These include Cook County (Chicago), Illinois and New York County, Suffolk County, Bronx and Nassau County – all in the New York metro area. On the other hand, counties that were less affordable than their historical affordability averages included Los Angeles County, California; Harris County (Houston), Texas; Maricopa County (Phoenix), Arizona; San Diego County, California; and Orange County, California. In these markets, it may be a good idea to invest in rental properties as it suggests strong rental demand.
Mortgage Interest Rates Will Remain Low
Mortgage rates in the US real estate market hit their lowest point in late 2016 and are now available at rates below 4% according to Freddie Mac. Experts in the US housing market forecast that this trend will stick around in 2020. In fact, mortgage rates could go even lower. Doug Duncan, the chief economist at Fannie Mae, explains that:
The Fed has moved to a bias toward easing, as global economic activity has slowed. Interest rates have fallen as a result and could move lower if the Fed acts to lower rates as insurance for economic growth.
Freddie Mac also expects mortgage rates for the 30-year fixed-rate mortgage to average at 4.1% in 2019, before increasing modestly to 4.2% in 2020.
According to the Economy Forecast Agency (EFA), the 30-year mortgage rate forecast for 2020 looks like this:
- January: 3.39%
- February: 3.47%
- March: 3.45%
- April: 3.50%
- May: 3.45%
- June: 3.39%
- July: 3.43%
- August: 3.47%
- September: 3.43%
- October: 3.53%
- November: 3.69%
- December: 3.63%
Furthermore, housing market predictions for 2020 from Fannie Mae, Freddie Mac, and the Mortgage Bankers Association all suggest that the 30-year mortgage rate will finish out the year between 3.9% and 4.1%. These low mortgage rates along with a strong job market and employment, should support the modest growth of the US housing market for the next 5 years. We can already see this trend benefiting first-time homebuyers as Forbes reported that over half of all mortgages originated by Fannie Mae and Freddie Mac went to first-time buyers last year. And with millennials hitting their prime home-buying years, we can only expect those numbers to grow.
Should We Worry About a Recession?
We all know that many real estate markets in the US were hit pretty badly during the Great Recession. Today, there are speculations that there could be another economic recession and a housing market crash in 2020. In its quarterly Home Price Expectations Survey, Zillow asked experts and economists to give their 2020 US housing market predictions and expectations for the next recession. Less than half (48%) said they expect the next recession to occur sometime in 2020. However, these experts believe that it’ll be different this time. While the housing bubble prompted the last recession, experts believe that the slowdown in the US real estate market won’t play a major role in the next one. Skylar Olsen, Zillow director of economic research, said: “Housing slowdowns have been a major component, if not catalyst, for economic recessions in the past, but that won’t be the case the next time around, primarily because housing will have worked out its kinks ahead of time. Housing markets across the country are already heading into a potential correction a solid year before the overall economy is expected to experience the same. The current housing slowdown is in some ways a return to balance that will help increase the resiliency of the housing market when the next recession does arrive.”
Those surveyed were also asked to choose and rank up to 3 likely triggers for the next recession. Results show that trade policy, stock market correction, or a geopolitical crisis are more likely to trigger the next recession than a housing market crash. In addition, experts say that even if there is a recession around the corner, the US real estate market is a lot healthier and we won’t see the same impact. Many believe that even though home sales are predicted to slow in 2020, constrained home supply, “house hungry” milennials, and powerful economic performances will outweigh housing crash indicators.
So, Is It Going to Be a Seller’s or Buyer’s Market in 2020?
Despite US housing market predictions 2020 seemingly pointing to a significant shift in the market to favor buyers, real estate experts don’t forecast a buyer’s market. Indeed, over three quarters (76%) of respondents in Zillow’s Home Price Expectations Survey said they don’t expect housing market conditions to shift until at least the end of this decade . Why is that?
Well, they believe that annual home value appreciation (which has been above historical norms) and inventory of homes for sale (which has fallen YOY in each of the past 42 months) are keeping upward pressure on home prices as buyers are competing for a limited pool of available homes. These real estate trends are, as a result, putting sellers in the driver’s seat, making it a seller’s market across the country at least for the next 5 years.
Nonetheless, recent data suggests that winds are beginning to shift. For example, while real estate appreciation is above its historical average rate, it has started to slow in many large markets. Furthermore, the pace of housing inventory declines has slowed and price cuts are becoming more common. Still, these housing market trends, while noticeable, have yet to strengthen to the point where the market will significantly shift to a buyer’s market.
In conclusion, we can say that the current slowdown and US real estate market forecast is, in some ways, a return to a balanced housing market – where there is enough demand from buyers to equal the supply from sellers.
What Does This Mean for Sellers and Buyers?
Is 2020 a good time to sell your properties as home prices are rising? Or is this the best time to invest as mortgage rates are dropping? Let’s start with what all of these housing market predictions mean for sellers. Experts agree that sellers can feel pretty good about the upcoming year as there’s still a lot of buyers in the market. However, there won’t be as much competition for each home as there was back in 2017. Therefore, sellers are advised to not expect multiple high offers and to fully understand local property values to compete in your target markets.
As for buyers, 2020 seems to be shaping up as a good time to enter the real estate market with no signs of imbalance that would either force them to hurry or pull back. The US housing market forecast suggests that the overall inventory of available homes for sale is expected to remain stable. And while it’s a seller’s market in most places, buyers can expect less competition than in previous years. In most cities, homes are now taking longer to sell and price reductions are more common.
This tells us that buyers are going to have a little bit more sway in real estate transactions and sellers are going to be a little more negotiable. Data from a recent Redfin report shows that just 11% of offers in July of 2019 faced a bidding war. This is down dramatically from 45% at the same time a year earlier and the lowest rate of bidding wars since at least 2011! In other words, buyers simply shouldn’t feel in a hurry to get a real estate deal done quickly to avoid missing out on an opportunity. All of this, besides the low interest rates, means that it’s a good time to start your search for a new home or investment property.
In Conclusion
Though no one can predict real estate market trends with complete accuracy, educated and thorough research can give us an idea of where things are headed. Overall, the 2020 US housing market predictions aren’t overwhelmingly pro-sellers or pro-buyers. This is basically good news all around for real estate investors. For buyers, prices aren’t going up at a steep rate that they can’t keep up with. As for sellers, there’s a healthy group of buyers out there looking for a new property.
As a result, experts in the industry don’t expect a housing market bubble to cause the next recession in 2020 as the real estate market is a lot healthier. At the end of the day, it’s important to remember that housing conditions vary by market – the conditions might look good on the national level, but some areas offer better real estate opportunities than others. If you’re a real estate investor looking for the best investment properties in the US to buy in 2020, start your search for local markets where you’ll get your best deals!
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