In 2019, the housing market experienced low rates, limited supply, and high demand, especially in properties in the lower price range. Is the real estate forecast for 2020 going to be the same? The short answer is yes and no.
According to real estate, mortgage, and housing experts, the new year is expected to bring a mix of the old and some fresh vigor. Below is a snippet of what is in store for you in the year 2020.
Low, or Even Lower, Mortgage Rates
The current mortgage rates are holding steady at 3.75 percent, which is a 1 percent drop compared to figures in 2018. This drop in the rates is an effect of the refinancing surge that has taken place in the last few months of 2019, as well as an increase in purchase activity. Expect the rates to remain low in 2020, maintaining between 3.7 percent and 3.9 percent.
Some experts think the figures will waver between 3.5 percent and 3.6 percent throughout the year. The low rates will encourage even more refinancing. For homebuyers, the trend will make homeownership more affordable than was possible before.
Rising Home Prices
Home prices are expected to climb due to a short in inventory supply and high demand. By September 2020, the prices of homes are expected to rise by 5.6 percent – an increase from the 3.5 percent experienced in 2019.
At the moment, there are fewer new listings, which indicates increased competition at the beginning of 2020 and may drive the price up. House shortage is expected to be most felt at the lower-price end of the housing spectrum. The entry-level prices of homes are expected to rise higher than incomes, and reduced construction will further compound the issue.
The shortage of starter homes and low-interest rates will push up prices as builders focus on putting up more higher-profit, expensive houses. Builders will do this at the expense of dwindling inventories of homes at entry-level rates. Smart agents will guide their clients through this shortage by fast response customer service and utilizing specific legal clauses in their offers.
Unfortunately, data indicates that the trend is likely going to continue even beyond 2020. Home price declines are expected to stand at only 11 percent, and no markets are expected to experience price declines in the next two years.
Increased Millennial Homebuyers
A key portion of our real estate forecast for 2020 focuses on millennials. Currently, the millennial generation is the largest sector, as it hit a whopping 46 percent of mortgage originations. At the same time, expect reduced activity from the Baby Boomer and Gen X generations.
It comes as no surprise as millennials place homeownership far above other life goals like marrying or having kids. The low-interest rates and increased incomes further increase the hold of this generation on the real estate market. Also, technology like apartment locators, free service that can be used to locate apartments in top Texas neighborhoods, for example, is further fueling the millennial generation’s drive to enter into the real estate market.
On the other hand, millennials are likely going to enter into a tighter real estate market in the coming year. The short supply environment, growing housing demand, and increased competition will increase the costs of homes.
The Baby Boomer generation is choosing to age in place, meaning that more homes will be off the market. If older adults born between 1931 and 1959 decided to behave like their older generations, the market would experience at least 1.6 million homes.
Millennial homeownership largely depends on their rising to the occasion by purchasing higher-priced homes thanks to increased income. Further, historically low mortgage rates will outpace the appreciation of the house price.
A Digitized Market
In recent years, the real estate and mortgage players have rapidly been moving from using paper and manual processes. The trend is expected to continue into 2020, especially as their tech-savvy millennial clients enter the market. Expect the millennials to increase their share in the mortgage market, driving lenders into innovating their tech offers to meet customer needs and expectations.
Many technology offerings are already in existence – consider e-signing, digital mortgage applications, and automated income verification. Instead of competing against each other, startups will partner to create legacy institutions.
Real estate investors rapidly realize that the world is changing. Some believe there is an increased risk of recession in the short term and slower economic growth over the long run. Despite the anxieties, the global real estate market is still a favored place for investors in the year 2020, and it helps to be prepared.
I hope you enjoyed our real estate forecast for 2020. I wish you a Happy Holiday season and a prosperous new year.