The housing market has been notoriously fickle when it comes to predicting what will happen next. However, industry experts have more tools and analytical data to work with than ever before, allowing them to predict recent trends with surprising accuracy.
We’ve seen 2019 pass as a year of low interest rates, rising home values, and high demand for housing, but will that trend continue into 2020? Here we take a deep dive into what experts predict for the housing market in 2020 and beyond.
Mortgage Rates Remain Low
Obviously, mortgage rates are a key driver of the housing market. Mortgage rates are currently hovering around 3.75 percent, about a full percentage point below what they were at this time last year. Forecasts from Fannie Mae show rates remaining stable over the next few years, and possibly dropping some, depending on economic conditions and Federal Reserve actions.
The Mortgage Bankers Association and Freddie Mac support this prediction as well, with both forecasting that rates will remain historically low, around 3.5% and 3.6% throughout the year.
Consumer Confidence Boosting Housing Starts
Towards the fourth quarter of 2019, consumer confidence was trending higher, and that confidence is fueling housing growth. A growing consensus of Americans say now is a good time to buy a home. Fannie Mae’s Home Purchase Sentiment Index (HPSI) confirmed this trend, rising 0.2 percent month over month and a full 8.2 percent over December 2019.
These numbers equate to a 16-point jump in Americans who believe it’s a good time to be a homebuyer. With 2019 recession fears fading, these numbers are bolstered by a robust economy, which is expected to grow 2.3% in 2019, and continue on that pace for most if not all of 2020.
This positive sentiment has translated into an increase in housing starts, as home builders attempt to keep up with demand. The mortgage financier’s Economic and Strategic Research Group increased its forecast for residential fixed investment by 1.2 percent in Q4 2019, indicating a 4.5 percent annual growth, and revised its 2020 and 2021 forecast to 3.4 percent from 0.3 and 1.1 percent, respectively.
Healthy Sales Growth
Fannie Mae says that the residential fixed investment is increasing because of the booming labor market and rising consumer spending. It is forecasting single-family housing starts to jump by 10 percent this year, to 975,000 units, with new home sales increasing by 5 percent to 725,000.
Home Prices Continue to Rise
Industry experts are predicting a continued rise in housing prices for 2020 and 2021, thanks to high demand and a shortage of inventory. According to property data firm Core Logic, home prices should grow by 5.6% during 2020, an increase of nearly two points from the 3.5% seen in 2019.
Real estate firm Redfin’s 2020 prediction on housing prices is backed by the contention that more buyers and less inventory will continue to bolster prices, especially for the high-end of the housing spectrum.
Redfin also sees relocation from more expensive cities to communities in Texas, Idaho, and the Carolinas continuing to drive prices upward during the year, and those regions will continue to lead the nation in price gains.
Here, we take a look at the top three Redfin predictions for the real estate market in 2020.
Bidding wars will rebound thanks to low mortgage rates and lack of inventory. – According to Redfin’s analysis, low mortgage rates will continue to increase homebuying demand, but with fewer homes on the market than anytime over the past five years, they believe one if four home purchase offers will become a bidding war. That is a significant increase over 1 in 10 we saw last year, with 2020’s increase in competition pushing prices upward of 6 percent.
Climate change will become a bigger factor in homebuyer’s decisions. – In 2020, more homebuyers will take climate change into consideration when deciding where they want to live, according to Redfin. As flood insurance premiums rise from increased risk, the downward economic pressure will have more buyers thinking twice before buying a home in a flood zone.
Charleston and Charlotte will continue to lead the nation for price growth. – As more Americans hit retirement age, they are relocating from high-priced areas into more affordable communities. This relocation trend will drive price growth in 2020, as their booming economies attract migrants from Midwest and northern states, placing further demand on the need for affordable housing.
Real Estate Investment Driving Affordable Housing
As economic growth remains positive, real estate investment continues to flow, with more investment dollars being placed into multifamily dwellings. Suburban areas and smaller metro centers are also benefiting from an increase in construction, with more affordable housing starts popping up in communities throughout the nation.
A resilient economy and strong real estate fundamentals will help propel housing growth well beyond 2020, with most economists predicting this increase will continue at least for the next two or three years.
All indicators point to the housing market remaining strong, and that historically low interest rates and an increase in housing construction will help sustain demand while boosting homeowner’s equity over the long-term.
If you’re interested in getting started on your homebuying journey, give us a call or get started on your loan application at ovmfinancial.com/quickstart
Written By: Dominic Bartolone