2020 Real Estate Market Outlook

The 2019 housing market has been one of low rates, high demand and limited supply—particularly for lower-priced, starter homes

Will 2020 be more of the same? According to experts, yes and no.

Job growth is up, unemployment is down, and the stock market is thriving. An undercurrent of concern, however, may be tempering consumer confidence, and that’s related to fears that another recession is imminent. Is that apprehension warranted?

The National Association of REALTORS® (NAR) answered that question and others in its first-ever Real Estate Forecast Summit on Dec. 11, featuring the insights and market forecasts of 16 economists.

While they all had varying opinions about the state of the housing market, and where we are headed, the biggest takeaway is that chances of another recession in the short-term are low, tallied at an average 29 percent chance by the economists.

Here’s what they had to say about today’s economy and real estate market:

“We are in a great economy,” said Lawrence Yun, PhD, NAR’s chief economist and senior vice president of Research “and the job market data certainly reflects that. There is consistent job creation, leading to a super low unemployment rate of 3.6 percent in the U.S. The stock market is at an all-time high, and homeowners have been accumulating wealth thanks to strong price appreciation.”

But there are segments of the population that are not participating in this wealth gain, said Yun.

“The younger buyer and African American homeownership rates are still struggling to gain traction,” said Yun. “We want to look into what could be the barriers or perhaps the housing conditions. We have more people, affordability conditions are better, yet home sales are actually lower, so something is not matching up with the current environment.”

Home values are increasing, but the growth is leveling out in certain price points, while others are a little livelier, reported multiple economists.

“We see a much higher increase at the low-end and it is far outstripping the wage increases at the entry level,” said Edward Pinto, resident fellow and director at the AEI Housing Center of the American Enterprise Institute.

For many places across the country, the home affordability gap is increasing because of this.

“The bad news is that home prices have been increasing much faster than household incomes,” said Kermit Baker, PhD, senior research fellow at the Joint Center for Housing Studies at Harvard University, who added that there is a lot of regional variation, and so metro areas along the Pacific Coast and Northeast corridor are where the home price-to-income ratio is not really sustainable.

Lack of inventory continues to be an obstacle, especially at the entry-level, affordable price points. Danushka Nanayakkara-Skillington, assistant vice president of Forecasting & Analysis for the National Association of Home Builders (NAHB), said one of the biggest issues is a lack of skilled labor in construction.

“There are 338,000 jobs open in construction, but we’re finding it really difficult to fill these jobs,” she said. “Many left the labor force for good after the Great Recession, and not many are going into construction or to trade schools at this time. The immigration platform has also choked off supply.”

According to NAR, there are markets, however, that are expected to outperform the challenged areas over the long term because of their strong housing affordability and local economic expansion:

  1. Charleston, S.C.
  2. Charlotte, N.C.
  3. Colorado Springs, Colo.
  4. Columbus, Ohio
  5. Dallas-Fort Worth, Texas
  6. Fort Collins, Colo.
  7. Las Vegas, Nev.
  8. Ogden, Utah
  9. Raleigh-Durham-Chapel Hill, N.C.
  10. Tampa-St. Petersburg, Fla.

“Potential buyers in these 10 markets will find conditions especially favorable to purchase a home going into the next decade,” said NAR President Vince Malta, broker at Malta & Co., Inc., in San Francisco, Calif. “The dream of owning a home appears even more attainable for those who move to or are currently living in these markets.”

According to Yun, economists agreed that these top 10 markets shared the following strengths:

  • Domestic migration into the area
  • Housing affordability for new residents
  • Consistent job growth outperforming the national average
  • Age structure of the population
  • Attractiveness for retirees
  • Home price appreciation

Moving Forward, What Can We Expect Of The Real Estate Market?

Mortgage rates will stay low—or maybe go lower.

“We expect mortgage rates to tick up slightly, finishing up between 3.8 and 3.9 percent,” (nearly a 1% below the monthly average a year ago) said Danielle Hale, chief economist at realtor.com®. There’s emerging consensus that rates will remain low next year—likely somewhere between 3.7% and 3.9%, she says. 

Forecasts from Freddie Mac and the Mortgage Bankers Association back this up, both predicting 2020 rates within this range. Fannie Mae actually predicts rates will clock in even lower, vacillating between 3.5% and 3.6% throughout the year. 

Home prices will keep rising. Inventory will be tight.

Low interest rates and a shortage of starter homes will continue to push up prices. 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 inventories of entry-level starter homes.

According to the latest home price forecast from property data firm CoreLogic, home prices should tick up by 5.6% by next September—up from the just 3.5% jump we saw this year.

We expect slight weakening in home sales, similar to what we saw in 2019, driven more by lack of supply than lack of demand. Without more real estate listings coming on the market, there will be more competition starting off in early 2020 and that will lead to more price pressure.

The problem will be worse on the lower end of the price spectrum. As indicated entry-level home prices will rise higher than incomes next year—and disappointing construction numbers will only compound the issue.

It seems the price growth may continue beyond 2020, too. Data from Arch MI shows the chance of home price declines at a mere 11% for the next two years. There are currently no states or metro markets projected to see prices declines in that period. 

Millennials will keep up their homebuying streak, while Bommers hold up inventory.

Data from Realtor.com shows Millennials made up a whopping 46% of all mortgage originations in September—up from 43% one year prior. Meanwhile, shares of Baby Boomer and Gen X mortgage activity declined. 

It’s no wonder, either. Millennials rank homeownership as one of their top goals in life—higher than even marrying or having kids—and with interest rates low and incomes up, it’s the right time to buy a home for many.

Unfortunately, as mentioned they face an uphill battle. As Millennials are facing a tougher housing market in 2020, including accelerating home price growth due to limited supply, growing demand and increased competition for homes.

The Baby Boomer generation is part of the challenge for this younger cohort, as many are choosing to age in place—keeping more homes off the market than ever before. 

The fate of Millennial home buying to close out 2019 and into 2020 will depend on two factors: if there is anything for them to buy, and whether rising purchasing power stemming from increasing income and historically low mortgage rates can continue to outpace house price appreciation.

In fact, a recent study from Freddie Mac shows that if today’s older adults—those born between 1931 and 1959—behaved like earlier generations, then an additional 1.6 million homes would have hit the market by the end of the last year.

The suburbs will be a big draw due to Millennial demand.

As home prices skyrocket, cash-strapped Millennials are looking toward more affordable places to put down roots—namely smaller, suburban towns on the outskirts of major metros. 

The trend has led to an uptick in “Hipsturbia” communities—live-work-play neighborhoods that blend the safety and affordability of the suburbs with the transit, walkability and 24-hour amenities of big cities. Locally think communities like Clintonville, Dublin, New Albany and Westerville.

The Urban Land Institute recently named Hipsturbia as one of its top real estate trends to watch in 2020.

As the report explains, “If the live-work-play formula could revive inner cities a quarter-century ago, there is no reason to think that it will not work in suburbs with the right bones and the will to succeed.”

The following predictions are averages based on the responses of all participating economists:

  • Mortgage rates will hold in 2020, rise incrementally and possibly hitting 4 percent in 2021—still incredibly favorable according to historical conditions
  • 60,000 more housing starts in 2021
  • Slower price appreciation that is more manageable and more closely in line with income growth
  • Rents expected to rise a little faster than home prices

Overall, predictions for the future were relatively optimistic, with concerns over a recession low—a one in three chance.

If you, or someone you know is considering Buying or Selling an Investment Property in Columbus, Ohio please give us a call and we’d be happy to assist you!

The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley 43209 Columbus 43201 43206 43214 43215 Delaware 43015 Downtown Dublin 43016 43017 Gahanna 43219 43230 Grandview Heights 43212 Galena 43021 Hilliard 43026 Lewis Center 43035 New Albany 43054 Pickerington 43147 Polaris Powell 43065 Upper Arlington 43220 43221 Westerville 43081 43082 Worthington 43235

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