The 2019 housing market has been one of low rates, high demand and limited supply, especially on the lower-priced end of the market.
People have been asking me… “Amir, will 2020 be more of the same?” Well, according to experts, yes AND no.
I spoke to multiple real estate broker friends of mine, lenders, developers, and real estate professionals. Below is a quick summary of what I learned.
Mortgage rates will most likely stay low, and possibly even go lower.
According to Freddie Mac’s most recent numbers, mortgage rates sit close to 3.75%. This is almost a 1% decline from the monthly average a year ago. This interest rate dropped cause a surge of refinancing over the last half of the year and fire activity picked up as well.
Deputy chief economist at First American title insurance, Mrs. Odeta Kushi, states that there’s “emerging consensus” that rates will remain low next year—likely somewhere between 3.7% and 3.9%, she says. Freddie Mac as well as the Mortgage Bankers Association backup this data with Fannie Mae predicting lower rates between 3.5 and 3.6% throughout the year. Because of these trends we should see refinancing remain stable or increase next year and new home buyers will be able to afford more housing than they would have otherwise.
Prices will keep on rising.
Thanks to tightening inventory and high demand we should expect home prices to continue their upward trajectory.
CoreLogic forecasts that home prices should tick up by 5.6% by next September—up from just 3.5% jump we saw this year; but remember, real estate is a micro-location industry, so this can vary significantly depending on where you are looking. Locations such as DFW, Nashville, and other growing economic cities may see a higher rise in general.
This trend will be accentuated on the lower-end, lower price spectrum. Entry-level home prices will rise higher than incomes next year—and slow construction numbers will only compound the issue. This leads to lower days on the market for lower priced homes. In fact, this is why Baluch Brothers Development, LLC was able to pre-sell their whole 28-home subdivision development in Ft. Worth, Texas before even breaking ground last month. Most developers are focusing on more expensive, potentially higher-profit homes and ignoring the lower priced, entry-level sector. These homes in general will see longer days on market because of higher inventory from new construction.
Low inventory in general
According to recent data, the average homeowner is staying in their home 13 years—up from just eight years in 2010. In some cities, homeownership tenures are as high as 23 years. This is one cause of the low inventory.
While historically low rates increase buying power and make it more likely for potential buyers to attain their homeownership dream, they also increase the risk of a long-run housing supply shortage, which we predict will continue through 2020 and and maybe longer. First-time buyers lock-in these historically amazing rates and existing owners refinance—in droves in recent months, everyone will stay put and not sell as there will not be much incentive.
Possibly some increasing construction may offer some relief in the inventory department. Last month’s residential construction report from the Census Bureau saw building permits and housing starts both increase over the year. At the same time, builder confidence was at a 20-month high, according to the National Association of Home Builders.
Millenials keep buying, Boomers won’t
Realtor.com shows Millennials made up a whopping 46% of all mortgage originations in September 2019—up from 43% one year prior. Meanwhile, new mortgages from Baby Boomers and Gen X’ers declined.
Interesting to note: Millennials rank homeownership as one of their top goals in life even higher than getting married or having kids, and with low interest rates coupled with higher incomes, we should continue to see more of them buying homes in 2020.
The suburbs will be a big draw thanks to Millennial demand.
As home prices increase, cash-strapped Millennials are looking toward more affordable places to to settle into, suburban towns on the outskirts of major metro areas.
Some people call this trend “Hipsturbia” communities—live-work-play neighborhoods that blend the safety, affordability, walkability, and 24-hr amenities of big cities.
The Urban Land Institute recently named Histurbia as one of its top real estate trends to watch in 2020.